annual report...annual report 2019 of tlg immobilien dear shareholders, as in previous years, tlg...

ANNUAL REPORT

2019

Office project NEO, Dresden

CONTENTS004 REPORT OF THE SUPERVISORY BOARD

010 CORPORATE GOVERNANCE REPORT

020 MANAGEMENT REPORT ON THE POSITION OF THE COMPANY AND OF THE GROUP

060 CONSOLIDATED FINANCIAL STATEMENTS

066 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

110 INDEPENDENT AUDITOR´S REPORT

118 PUBLISHING DETAILS

Page reference

Link

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DEAR SHAREHOLDERS,

As in previous years, TLG IMMOBILIEN AG performed very well in the 2019 financial year and improved its key

performance indicators yet again. In addition to the successful implementation of various capital measures,

we were able to initiate a merger with Aroundtown SA, a leading real estate company.

A TRUSTING PARTNERSHIP WITH THE MANAGEMENT BOARD

In the 2019 financial year, the Supervisory Board fulfilled the role incumbent upon it in line with the law,

Articles of Association, German Corporate Governance Code and rules of procedure with the greatest of care.

It regularly advised the Management Board on the management of the company and monitored its activities.

Including outside of Supervisory Board meetings, the Management Board provided the Supervisory Board

with regular, prompt and comprehensive reports on policies, strategy and planning and the position of the

company, including opportunities and risks, the course of business and risk management. Any deviations be-

tween actual and planned developments were also discussed and significant transactions were coordinated

closely between the Supervisory Board and the Management Board.

The Chairperson of the Supervisory Board and the other members of the Supervisory Board were also in

frequent contact with the Management Board outside of the meetings of the Supervisory Board in order to

discuss important matters. In particular, they discussed the strategic orientation and the development of the

business of the company in detail.

The Supervisory Board was quickly and directly involved in all decisions of fundamental importance to the

company and in all transactions requiring approval.

MEETINGS OF THE SUPERVISORY BOARD

Of the 24 meetings of the Supervisory Board in the 2019 financial year, eleven were meetings in person and

13 were teleconferences. The Supervisory Board discussed current business developments, important individ-

ual transactions and transactions requiring its approval. Furthermore, resolutions were passed by circulation

in eleven cases.

The Supervisory Board passed the necessary resolution for each proposal after carrying out thorough exam-

inations and holding detailed discussions in its meetings. All of the members of the Supervisory Board were

present at 13 meetings in the 2019 reporting year.

REPORT OF THE SUPERVISORY BOARD

4 REPORT OF THE SUPERVISORY BOARD

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REPORT OF THE SUPERVISORY BOARD 5

In the 2019 financial year, the work of the Supervisory Board focused on planning and developing the busi-

ness of TLG IMMOBILIEN AG as well as the corporate strategy, the Alexanderplatz development project,

property acquisitions, the expansion of the Management Board and the appointment of new members to the

Supervisory Board. The merger with Aroundtown SA also played a significant role.

The Supervisory Board regularly held in-depth consultations on the development of the office and retail port-

folio as well as on the cash flows and liquidity of the Group.

On 22 January 2019, the Supervisory Board passed a resolution by circulation to amend the share capital in

the Articles of Association in accordance with Sec. 201 AktG due to the utilisation of the company’s Authorised

Capital 2017/III in 2018.

On 25 January 2019, in its first meeting in person, the Supervisory Board addressed the preparation of an ex-

traordinary general meeting, which had been called by a shareholder. It also amended the rules of procedure

for the Management Board in a circular resolution.

On 31 January 2019, the Supervisory Board passed a circular resolution on the judicial appointment to the seat

on the Supervisory Board left vacant by the resignation of Dr Claus Nolting.

On 28 February 2019, the Supervisory Board passed a circular resolution on the revision of the declaration of

compliance with the German Corporate Governance Code. It also resolved on the engagement of valuation

services for 2019 to 2021.

In the meeting of the Supervisory Board held in person on 20 March 2019, the annual and consolidated finan-

cial statements for 2018 were presented and approved and both the appropriation of net retained profit and

the appointment of the auditor were approved. The report of the Supervisory Board to the general meeting

and the corporate governance report were also approved. Furthermore, resolutions were passed on the agen-

da for the annual general meeting in 2019 and on the selection of a notary for it. The portfolio analysis report

was presented and matters relating to the Management Board were discussed.

On 22 March 2019, the Supervisory Board passed a circular resolution on the Alexanderplatz project.

In the meeting of the Supervisory Board held in person on 24 April 2019, the Board discussed the possibilities

of a bond issue in May 2019 and resolved to engage Ernst & Young in connection with this. In the meeting

of the Supervisory Board held as a teleconference on 16 May 2019, a resolution was passed to issue a bond.

In the meeting of the Supervisory Board held in person on 21 May 2019, the Supervisory Board elected a

Chairperson (Mr Sascha Hettrich) and a Vice-chairperson (Mr Ran Laufer), as well as various members for the

committees of the Supervisory Board. It also discussed the appointment of a new Supervisory Board member.

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In the meeting of the Supervisory Board held as a teleconference on 28 May 2019, the Supervisory Board

resolved to appoint a third member to the Management Board, Mr Barak Bar-Hen.

In three teleconferences and one circular resolution on 25 and 26 June 2019, the Supervisory Board addressed

the execution of a capital increase from the company’s Authorised Capital 2017/II.

In a teleconference held on 8 July 2019, the Supervisory Board had a comprehensive strategic discussion and

then passed a circular resolution on 10 July 2019 approving the appointment of a strategic advisor.

On 11 July 2019, the Supervisory Board passed a circular resolution establishing a subsidiary in Luxembourg

and engaging Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (Luxembourg) to audit its opening

balance.

In the meeting of the Supervisory Board held in person on 8 August 2019, the Supervisory Board discussed

the bond issue in May and the capital increase in June 2019. The Supervisory Board also discussed potential

acquisitions and the status of development projects. It also discussed the future strategy of the company

again.

In the meeting of the Supervisory Board held in person on 30 August 2019, the Aroundtown SA project

was presented to the Supervisory Board. This project was discussed again by the Supervisory Board in a

teleconference on 31 August 2019. In the following teleconference of the Supervisory Board on 1 September

2019, the Supervisory Board approved the conclusion of an agreement concerning the acquisition of up to

15% of the shares of Aroundtown SA and on the opening of negotiations regarding a merger with it. In this

context, the Supervisory Board passed a resolution to procure interim finance in another teleconference on

5 September 2019.

In another Supervisory Board teleconference held on 15 September 2019, the Supervisory Board approved the

issuance of a bond and of a hybrid bond, each with a nominal value of up to EUR 600 m.

In the meeting of the Supervisory Board held in person on 22 October 2019, the Supervisory Board discussed

the Aroundtown SA project, potential acquisitions, ongoing development projects, the call for tenders for the

auditor, the strategy with regard to the interest in WCM Beteiligungs- und Grundbesitz Aktiengesellschaft and

other matters relating to the Supervisory Board.

Subsequently, the Aroundtown SA project was monitored closely in three Supervisory Board meetings held

in person (on 14 and 18 November and 17 December 2019) and four Supervisory Board teleconferences (on

24 and 26 October, 12 November and 22 December 2019) in which the Supervisory Board approved the term

sheet and the conclusion of the business combination agreement as well as the publication of the joint report

of the Management Board and Supervisory Board.

Furthermore, the Supervisory Board met in person on 4 November 2019 to approve the business plan for

2020 and discuss upcoming acquisitions, the business distribution plan of the Management Board and various

matters pertaining to compliance.

On 16 December 2019, the Supervisory Board passed a circular resolution on the execution of the develop-

ment project “Annenhöfe” in Dresden.


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EFFICIENT WORK IN FOUR SUPERVISORY BOARD COMMITTEES

In order to efficiently fulfil its duties, the Supervisory Board formed committees and continuously evaluated

their requirements and activities during the reporting year.

Specifically, there were four committees in the reporting year; the presidential and nomination committee,

the audit committee, the capital market and acquisitions committee and the project development committee

whose duties are described in more detail in the corporate governance report available at https://ir.tlg.eu/

corporategovernance.

Where legally permissible, individual committees were granted decision-making powers by the rules of pro-

cedure or resolution of the Supervisory Board. At the meeting of the Supervisory Board following each com-

mittee meeting, the chairpersons of the committees reported on the work of the committees.

The presidential and nomination committee met once in the 2019 reporting year (on 28 May 2019). In this

meeting, the committee discussed the appointment of Mr Barak Bar-Hen as another member of the Manage-

ment Board and as CEO of TLG IMMOBILIEN AG and made a recommendation to this effect to the Supervisory

Board.

In the reporting year, the audit committee met five times (on 20 March, 6 May, 28 May, 8 August and

4 November 2019) and passed one resolution by circulation (on 10 June 2019). In particular, the subjects

discussed by the committee included the preliminary audit of the annual financial statements, consolidated

financial statements and interim reports of TLG IMMOBILIEN AG. It provided the Supervisory Board with a rec-

ommendation on which auditor to appoint for the 2019 financial year, procured the independence declaration

from the auditor and monitored the activities of the auditor. Furthermore, the audit committee approved

the engagement of the Berlin office of Ernst & Young GmbH, Wirtschaftsprüfungsgesellschaft, Stuttgart, with

other assurance services in connection with the voluntary audit of a subsidiary and consulting as part of the

Aroundtown SA project. The members of the audit committee have particular knowledge and experience in

the application of GAAP and internal control processes.

The capital market and acquisitions committee met three times in the 2019 financial year (on 10 July,

30 July and 17 September 2019). The agendas of the meetings were strategic discussions and the capital

measures implemented by TLG IMMOBILIEN AG.

The project development committee met a total of three times (on 6 March, 8 May and 30 July 2019). The

meetings focused on the development project on Alexanderplatz and other planned development projects.

CORPORATE GOVERNANCE

The Supervisory Board continuously monitored and discussed the development of the corporate governance

of the company. The corporate governance report available at https://ir.tlg.eu/corporategovernance contains

detailed information on this system, including the structure and amount of remuneration paid to the Super-

visory Board and Management Board.

The Management Board and Supervisory Board have discussed the requirements of the German Corporate

Governance Code as applicable in the reporting year in detail, as well as their implementation. They have

issued their updated joint declaration of compliance in accordance with Sec. 161 AktG and published it on the

website of TLG IMMOBILIEN at https://ir.tlg.eu/declaration-of-compliance.


https://ir.tlg.eu/corporategovernance


https://ir.tlg.eu/websites/tlg/English/7100/corporate-governance-report-and-declaration-on-corporate-governance.html

https://ir.tlg.eu/declaration-of-compliance

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AUDIT OF THE ANNUAL AND CONSOLIDATED FINANCIAL STATEMENTS

The annual financial statements of TLG IMMOBILIEN AG and the consolidated financial statements as at 31 De-

cember 2019, including management reports, prepared by the Management Board were examined by the audi-

tor appointed by the general meeting on 21 May 2019 and engaged by the Supervisory Board, the Berlin office

of Ernst & Young GmbH, Wirtschaftsprüfungsgesellschaft, Stuttgart, and given an unqualified opinion.

Once prepared, the annual and consolidated financial statements of TLG IMMOBILIEN AG, including man-

agement reports and the audit reports of the auditor, were issued to all members of the Supervisory Board

without undue delay. The auditor attended the audit committee meeting held on 27 March 2020 and reported

on the key results of the audit. After an in-depth discussion, the audit committee agreed with the results of

the audit.

The Chairperson of the audit committee reported on the annual financial statements and the audit in detail

at the meeting of the Supervisory Board held on 27 March 2020. Additionally, the auditor explained the main

outcomes of the audit, answered questions and provided more information to the members of the Super-

visory Board. The Supervisory Board carefully examined the annual financial statements, the management

report, the Group management report, the proposed appropriation of net retained profits and the audit

reports prepared by the auditor. No objections were raised. Therefore, the Supervisory Board accepted the

recommendation of the audit committee and approved the annual and consolidated financial statements as

at 31 December 2019 that had been prepared by the Management Board. The annual financial statements

were therefore adopted.

The adopted annual financial statements contained net retained profits. The Supervisory Board accepted the

proposal made by the Management Board as to the appropriation of the net retained profits. Therefore, the

Supervisory Board and Management Board will add a vote on the payment of a dividend of EUR 0.96 per

share (based on 107.6 m shares as at 31 December 2019) to the agenda of the general meeting in 2020.

The proposal of the Management Board will remain subject to the further development of the coronavirus

pandemic and the performance of the markets until the invitation to the annual general meeting is published.


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CHANGES IN THE COMPOSITION OF THE SUPERVISORY BOARD AND MANAGEMENT BOARD

Dr Claus Nolting stepped down from the Supervisory Board on 31 December 2018. Mr Jonathan Lurie was

appointed as a new member of the Supervisory Board by the local court of Berlin Charlottenburg on 15 Feb-

ruary 2019 until the end of the general meeting in 2019 in which Mr Lurie was elected as a member of the

Supervisory Board. Mr Lurie was appointed as a member of the Supervisory Board until the end of the general

meeting that resolves on the exoneration of the Supervisory Board for the fourth financial year after the start

of his term of office, not counting the financial year in which his term of office started.

Mr Stefan E. Kowski stepped down from the Supervisory Board on 15 May 2019.

The terms of office of Dr Michael Bütter and Mr Michael Zahn on the Supervisory Board ended at the end of

the annual general meeting of TLG IMMOBILIEN AG on 21 May 2019. On 21 May 2019, the annual general

meeting of TLG IMMOBILIEN AG elected Mr Klaus Krägel and Mr Ran Laufer to succeed them as new members

of the Supervisory Board. Mr Krägel and Mr Laufer were appointed as members of the Supervisory Board

until the end of the general meeting that resolves on the exoneration of the Supervisory Board for the fourth

financial year after the start of their terms of office, not counting the financial year in which their terms of

office started.

Mr Barak Bar-Hen was appointed as another member of the Management Board and as CEO of TLG IMMOBILIEN

AG with effect from 3 June 2019.

On behalf of the Supervisory Board, I would like to thank all members of the Management Board as well as

the employees of TLG IMMOBILIEN for their commitment and the constructive work we have done this year.

Berlin, March 2020

For the Supervisory Board

Sascha Hettrich

Chairperson of the Supervisory Board


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CORPORATE GOVERNANCE REPORT AND DECLARATION ON CORPORATE GOVERNANCE

In this declaration, TLG IMMOBILIEN AG (also referred to as the “company”) reports on the principles of man-

agement pursuant to Sec. 289f of the German Commercial Code (HGB) and on corporate governance pursuant

to Sec. 161 of the German Stock Corporation Act (AktG) and recommendation 3.10 of the German Corporate

Governance Code (the “Code”). Besides a declaration of compliance with the Code, the declaration contains

information on management practices as well as the composition and methods of the Management Board and

Supervisory Board and Supervisory Board committees.

IMPLEMENTATION OF THE CODE

Corporate governance denotes the responsible management and control of a company with a view to gen-

erating value over the long term. The management and the corporate culture of TLG IMMOBILIEN AG comply

with the statutory provisions and – with a few exceptions – the supplementary recommendations of the Code.

The Management Board and Supervisory Board feel committed to ensuring good corporate governance, and

all divisions of the company adhere to this objective. The company focuses on values such as expertise,

transparency and sustainability.

In the 2019 financial year, the Management Board and Supervisory Board worked carefully to meet the re-

quirements of the Code. They factored in the recommendations of the Code from 7 February 2017 and, pursu-

ant to Sec. 161 AktG, they issued their declaration of compliance with the recommendations of the Code for

the 2019 financial year accompanied by statements regarding the few deviations. The declaration is published

on the company’s website at https://ir.tlg.eu/declaration-of-compliance.

DECLARATION OF COMPLIANCE

In November 2019, the Management Board and Supervisory Board of the company issued the following joint

declaration of compliance pursuant to Sec. 161 of the German Stock Corporation Act (AktG):

The Management Board and Supervisory Board of TLG IMMOBILIEN AG declare that TLG IMMOBILIEN AG (the

“company”) has fulfilled the recommendations of the amended German Corporate Governance Code dated

7 February 2017 (published on 24 April 2017 and corrected on 19 May 2017) (the “Code”) since the last

declaration of compliance in March 2019, subject to the following exceptions, and intends to fulfil all of the

recommendations in the future.

10 CORPORATE GOVERNANCE REPORT AND DECLARATION ON CORPORATE GOVERNANCE

https://ir.tlg.eu/declaration-of-compliance.html

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RECOMMENDATION 4.2.1 SENTENCE 1 OF THE CODE: THE MANAGEMENT BOARD SHALL HAVE A CHAIR

OR SPOKESPERSON

Recommendation 4.2.1 (1) sentence 1 of the Code recommends that the Management Board have a chair or

spokesperson.

Until the appointment of Mr Barak Bar-Hen as Chairperson of the Management Board and CEO of the com-

pany, the company had opted for a dual leadership model by appointing a CFO and a COO and relied on the

two members of the Management Board to work together closely and productively and allocate fields of

responsibility properly.

Following the appointment of Mr Barak Bar-Hen as Chairperson of the Management Board and CEO as at

3 June 2019, the company has a Management Board consisting of three persons with the traditional CEO-CFO-

COO structure and has met the specifications of recommendation 4.2.1 sentence 1 of the Code ever since.

RECOMMENDATION 5.1.2 (2) SENTENCE 3 OF THE CODE: THE SUPERVISORY BOARD SHALL SPECIFY AN

AGE LIMIT FOR THE MEMBERS OF THE MANAGEMENT BOARD

According to recommendation 5.1.2 (2) sentence 3 of the Code, the Supervisory Board shall specify an age

limit for the members of the Management Board.

The company does not consider the specification of a general age limit a reasonable criterion for the selection

of suitable Management Board members. An age limit is not currently an issue between the persons currently

appointed to the Management Board. Additionally, with regard to decisions affecting the composition of a

functional, effective Management Board, the appointment of a member with many years of experience can

be in the interest of the company, rendering the specification of a general age limit unreasonable in the eyes

of the company, regardless of the candidate in question.

RECOMMENDATION 5.4.1 (4) SENTENCE 1 OF THE CODE: CONSIDERATION FOR TARGETS FOR THE SHARE

OF FEMALE MEMBERS

According to recommendation 5.4.1 (4) sentence 1 of the Code, proposals by the Supervisory Board to the

general meeting shall take the targets for the share of female members on the Supervisory Board into

account.

In its meeting on 23 May 2017, the Supervisory Board set the target proportion of women on the Supervisory

Board at 16.67%. The Supervisory Board is not currently meeting this target and was unable to take these

targets into account in its proposals to the general meeting due to a lack of available female candidates.

RECOMMENDATION 5.4.3 SENTENCE 3 OF THE CODE: PROPOSED CANDIDATES FOR THE

SUPERVISORY BOARD CHAIR

According to recommendation 5.4.3 sentence 3 of the Code, proposed candidates for the Supervisory Board

Chair shall be announced to the shareholders.

Due to the multitude of positions and candidates up for election with regard to the Supervisory Board in

the 2019 annual general meeting, it was not possible to coordinate potential candidates for the Supervisory

Board Chair in advance. After the end of the general meeting, the newly elected Supervisory Board elected

its Chair from within its own ranks in its constitutive meeting.

Furthermore, the company voluntarily fulfils the recommendations of the Code with the following exception:

According to recommendation 2.3.3 of the Code, the company should make arrangements to allow share-

holders to follow the general meeting using modern means of communication (e.g. the Internet). In order to

preserve the character of the general meeting as a personal meeting of its shareholders, the company has

decided not to follow this recommendation. Instead, the results of votes and the presentation of the Manage-

ment Board are published on the company’s website.

CORPORATE GOVERNANCE REPORT AND DECLARATION ON CORPORATE GOVERNANCE 11

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MANAGEMENT PRACTICES

TLG IMMOBILIEN AG is managed in the following way:

METHODS OF THE MANAGEMENT BOARD AND SUPERVISORY BOARD

As an Aktiengesellschaft (stock corporation) incorporated under German law, TLG IMMOBILIEN AG has a dual

management system consisting of the Management Board and the Supervisory Board. They work closely

together to further the interests of the company. The Management Board runs the company whilst the

Supervisory Board advises and monitors it. The shareholders of TLG IMMOBILIEN AG exercise their rights in

the general meeting.

MANAGEMENT BOARD

The Management Board is responsible for the management of the company in accordance with the statutory

provisions, the Articles of Association and the rules of procedure for the Management Board. It is obliged to

serve the interests of the company. The Management Board develops the strategy of the company, coordi-

nates it with the Supervisory Board and ensures that it is implemented. It is also responsible for reasonable

risk management and control and for submitting regular, prompt and comprehensive reports to the Super-

visory Board.

The Management Board performs its management duties as a collegial body in which the members of

the Management Board hold the same voting rights. The Board’s overall responsibility for management

notwithstanding, the members of the Management Board manage the divisions to which each has been

assigned by the Management Board on their own authority. Mr Barak Bar-Hen is the CEO of the Management

Board. The divisions are divided between the members of the Management Board as set out in the rules

of procedure for the Management Board. Mr Gerald Klinck is responsible for finance, controlling, accounting,

investor relations, legal, IT/organisation and human resources. Mr Jürgen Overath is responsible for

investments, portfolio/asset management, marketing and public relations, acquisitions and disposals, property

management and development projects. All members of the Management Board are jointly responsible for

the auditing division.

The work of the Management Board is governed in more detail by rules of procedure. The rules of procedure

stipulate that the strategic orientation of the company and the strategic allocation of resources are deter-

mined by the entire Management Board. Additionally, measures and transactions which are of extraordinary

significance to the company and/or Group companies, or which involve an extraordinarily high economic risk,

require the prior approval of the entire Management Board. Furthermore, the rules of procedure and Articles

of Association require certain transactions of fundamental significance to be approved by the Supervisory

Board or one of its committees in advance.

The Management Board provides the Supervisory Board with regular, prompt and comprehensive reports

on all relevant matters of strategy, planning, business development, risk, risk management and compliance.


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SUPERVISORY BOARD

The Supervisory Board monitors and advises the Management Board. It works closely with the Management

Board to further the interests of the company and is involved in all decisions of fundamental importance.

Its rights and duties are determined by the statutory provisions, the Articles of Association, the rules of

procedure for the Supervisory Board and the rules of procedure for the Management Board. It appoints and

dismisses the members of the Management Board and, together with the Management Board, ensures long-

term succession planning.

It works both in plenary sessions and in committees (more details below). The committees work to improve

the efficiency of the Supervisory Board’s activities. The chairpersons of the committees regularly report to the

Supervisory Board on the work of their committees. In line with its rules of procedure, the Supervisory Board

must convene at least twice every six months. Otherwise, it convenes whenever the interests of the company

require it. Four Supervisory Board meetings are currently scheduled for the 2020 calendar year.

In particular, the members of the Supervisory Board are selected by virtue of their expertise, abilities and

professional suitability. In its rules of procedure and profile of skills and expertise, the Supervisory Board has

set itself the objective of taking the following into consideration with regard to its composition and as part

of the specific situation of the company: shareholder structure, current and potential conflicts of interest and

competitive relationships, other professional activities, the number of independent members, an age limit

of 75, a regular limit of the term of office of 15 years or three terms and the diversity of the members of

the Supervisory Board. Besides the statutory requirements (Sec. 100 AktG), the proposals of the Supervisory

Board regarding the appointment of members of the Supervisory Board adhere to the regulations of the

German Corporate Governance Code as amended concerning the personal requirements of Supervisory Board

members and the composition targets set by the Supervisory Board. At least one member of the Supervisory

Board must be an expert in either accounting or auditing (Sec. 100 (5) clause 1 AktG). According to Sec. 100

(5) clause 2 AktG, all of the members of the Supervisory Board must also be familiar with the sector in which

the company operates. The company has followed the specific recommendations of recommendation 5.4.1

(2) and (3) of the Code which concern the composition of the Supervisory Board under certain criteria, the

inclusion of these objectives in the recommendations of the Supervisory Board and the publication of the

objectives and their implementation status in the Corporate Governance Report.

PROPORTION OF WOMEN

In its meeting on 23 May 2017, the Supervisory Board set the target proportion of women on the Super-

visory Board at 16.67%. The Supervisory Board is not currently meeting this target and was unable to

take these targets into account in its proposals to the general meeting due to a lack of available female

candidates.

The minimum target proportion of women on the Management Board of TLG IMMOBILIEN AG is zero.

In its meeting on 29 June 2017, the Management Board set the minimum proportion of women on the

first management level below the Management Board at 10% and the minimum proportion of women on

the second management level below the Management Board at 30%; the proportion of women on these

management levels may not fall below this target before 30 June 2022.


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COMPOSITION OF THE MANAGEMENT BOARD AND SUPERVISORY BOARD

Pursuant to the Articles of Association, the Management Board consists of at least two people. The Super-

visory Board specifies the number of members. In the 2019 financial year, the Management Board initially

consisted of two equal members, each of whom was responsible for the divisions to which they had been

assigned. The Management Board has had a third member, the CEO, since June 2019.

Pursuant to the Articles of Association, the Supervisory Board consists of six members, although one seat is

currently vacant. It is not subject to any employee participation. All of the members are elected by the gen-

eral meeting as representatives of the shareholders.

Dr Claus Nolting stepped down from the Supervisory Board on 31 December 2018. Mr Jonathan Lurie was

appointed as a new member of the Supervisory Board by the local court of Berlin Charlottenburg on 15 Feb-

ruary 2019 until the end of the general meeting in 2019 in which Mr Lurie was elected as a member of the

Supervisory Board. Mr Lurie was appointed as a member of the Supervisory Board until the end of the general

meeting that resolves on the exoneration of the Supervisory Board for the fourth financial year after the start

of his term of office, not counting the financial year in which his term of office started.

Mr Stefan E. Kowski stepped down from the Supervisory Board on 15 May 2019.

The terms of office of Dr Michael Bütter and Mr Michael Zahn on the Supervisory Board ended at the end of

the annual general meeting of TLG IMMOBILIEN AG on 21 May 2019.

On 21 May 2019, the annual general meeting of TLG IMMOBILIEN AG elected Mr Klaus Krägel and Mr Ran

Laufer to succeed them as new members of the Supervisory Board. Mr Krägel and Mr Laufer were appointed

as members of the Supervisory Board until the end of the general meeting that resolves on the exoneration

of the Supervisory Board for the fourth financial year after the start of their terms of office, not counting the

financial year in which their terms of office started.

All of the members of the Supervisory Board are also familiar with the commercial real estate sector.

The Supervisory Board prepared a profile of skills and expertise in 2018 and expanded the diversity criteria.

Pursuant to Sec. 285 no. 10 HGB, more information on the members of the Management Board and Super-

visory Board can be found in the notes to the annual financial statements of TLG IMMOBILIEN AG (page 12

and 13).

COLLABORATION BETWEEN THE MANAGEMENT BOARD AND SUPERVISORY BOARD

The Management Board and Supervisory Board work closely together to further the interests of the company.

The intensive, continuous dialogue between the two Boards serves as the basis of efficient, strategic corpo-

rate management. The Management Board develops the strategy of TLG IMMOBILIEN AG, coordinates it with

the Supervisory Board and ensures that it is implemented.


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The Management Board discusses the progress of the implementation of its strategy with the Supervisory

Board at regular intervals. The Chairperson of the Supervisory Board is in regular contact with the Management

Board and provides it with guidance on matters of strategy, planning, business development, the risk situation,

risk management and compliance. The Management Board reports to the Chairperson of the Supervisory

Board without undue delay on significant events that are of key relevance to an assessment of the situation

and developments and to the management of the company and its Group companies. The Chairperson of

the Supervisory Board then notifies the Supervisory Board and, if necessary, convenes an extraordinary

meeting of the Supervisory Board. In the 2019 financial year, the work between the Management Board and

Supervisory Board focused primarily on the strategy of the company, various development project measures

and the Aroundtown SA project.

In accordance with the Articles of Association and rules of procedure of the Management Board, transactions

of fundamental significance are subject to the approval of the Supervisory Board.

The members of the Management Board must report any conflicts of interest to the Supervisory Board and

their fellow Management Board members without undue delay. Significant transactions between members

of the Management Board or related parties and the company require the approval of the Supervisory Board,

as does any secondary employment outside of the company.

A D&O group insurance policy has been taken out for the members of the Management Board and Super-

visory Board. This policy contains an excess that meets the requirements of Sec. 93 (2) sentence 3 AktG and

recommendation 3.8 of the Code.

COMMITTEES OF THE SUPERVISORY BOARD

In the 2019 financial year, the Supervisory Board had four committees: the presidential and nomination com-

mittee, the audit committee, the capital market and acquisitions committee and the project development

committee. Other committees can be formed if necessary.

PRESIDENTIAL AND NOMINATION COMMITTEE

The presidential and nomination committee provides advice on its areas of expertise and prepares resolutions

for the Supervisory Board, especially concerning the following matters:

a) Appointing and dismissing members of the Management Board;

b) Concluding, amending and terminating the employment contracts of members of the Management

Board;

c) The structure of the remuneration system for the Management Board, including the key contractual ele-

ments and the total remuneration for each member of the Management Board;

d) Supervisory Board recommendations for the general meeting in connection with the election of suitable

members of the Supervisory Board;

e) Principles of financing and investments, including the capital structure of TLG IMMOBILIEN Group compa-

nies and dividend payments;

f) Principles of acquisition and disposal strategies, including the acquisition and disposal of individual share-

holdings of strategic significance.

In consultation with the Management Board, the presidential and nomination committee regularly advises on

long-term succession planning for the Management Board.

As at March 2020, the presidential and nomination committee consisted of Mr Sascha Hettrich, Mr Jonathan

Lurie and Mr Ran Laufer. The Chairperson of the Supervisory Board is also the Chairperson of the presidential

and nomination committee.


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AUDIT COMMITTEE

The audit committee predominantly monitors the accounting process, the effectiveness of the internal control

system and audit system, the audit of the financial statements – especially the independence of the auditor

– the additional services rendered by the auditor, the selection of an auditor, the identification of main audit

points, the auditor’s fee and compliance.

The audit committee prepares the resolutions of the Supervisory Board on the annual financial statements

(and, if necessary, the consolidated financial statements), i.e. it is primarily responsible for the preliminary

audit of the documents of the annual financial statements and consolidated financial statements, the prepara-

tion of their approval/adoption and the proposed appropriation of profits by the Management Board. Further-

more, the audit committee prepares the agreements with the auditor (especially the awarding of the audit

contract, the definition of focal points for the audit and the agreed fees) as well as the appointment of the

auditor by the general meeting. This also involves the verification of the necessary degree of independence,

in which regard the audit committee takes reasonable steps to determine and monitor the independence of

the auditor. In lieu of the Supervisory Board, the audit committee approves contracts with auditors for addi-

tional consultancy services if such contracts require consent. The audit committee discusses the principles of

compliance, risk documentation, risk management and the suitability and effectiveness of the internal control

system with the Management Board. Four audit committee meetings are currently scheduled for the 2020

calendar year.

As at March 2020, the audit committee consisted of Mr Helmut Ullrich (Chairperson), Mr Jonathan Lurie and

Mr Sascha Hettrich. The Chairperson of the audit committee is independent and has particular knowledge and

experience in the application of GAAP and internal control processes, and therefore meets the requirements

of Sec. 100 (5) clause 1 AktG. The members of the audit committee are experts in accounting and auditing,

and the composition of the committee meets all independence requirements in terms of the European

Commission Regulation of 15 February 2005 on the role of non-executive or supervisory directors of listed

companies and on the committees of the (supervisory) board (2005/162/EC), as well as the recommendations

of the Code.

CAPITAL MARKET AND ACQUISITIONS COMMITTEE

The committee advises the Management Board on transactions relating to the capital markets and acquisi-

tions. It grants any necessary approvals in lieu of the plenary session.

The members of the capital market and acquisitions committee are Mr Sascha Hettrich (Chairperson),

Mr Helmut Ullrich and Mr Jonathan Lurie.

PROJECT DEVELOPMENT COMMITTEE

The committee advises the Supervisory Board on development projects.

The committee consists of Mr Klaus Krägel (Chairperson), Mr Sascha Hettrich and Mr Ran Laufer.

MANAGEMENT BOARD COMMITTEES

The Management Board has not formed any committees. The Management Board performs its management

duties as a collegial body with a chairperson, although the individual members of the Management Board are

responsible for their own divisions.


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GENERAL MEETING AND SHAREHOLDERS

The shareholders of TLG IMMOBILIEN AG can exercise their rights in the general meeting, including their voting

rights. Every share in the company grants one vote.

The general meeting takes place annually, within the first eight months of the financial year. The agenda of

the general meeting and the reports and documents required for the general meeting are published on the

company’s website at https://ir.tlg.eu/agm.

Fundamental resolutions are passed in general meetings. These include resolutions on the appropriation of

profits, the exoneration of the Management Board and Supervisory Board, the election of members to the

Supervisory Board, the appointment of the auditor, amendments to the Articles of Association and capital

measures. The general meeting is an opportunity for the Management Board and Supervisory Board to come

face to face with the shareholders and discuss the future course of the company.

In order to make it easier for them to exercise their rights, TLG IMMOBILIEN provides its shareholders with

a proxy who is bound to follow their instructions; the proxy remains available during the general meeting.

The invitation to the general meeting explains how instructions can be issued in the run-up to the general

meeting. Additionally, the shareholders are free to have an authorised representative of their choice represent

them in the general meeting.

OTHER MATTERS OF CORPORATE GOVERNANCE

REMUNERATION OF THE MANAGEMENT BOARD

The remuneration system for the Management Board is regularly the subject of consultation, examination and

revision in the plenary sessions of the Supervisory Board.

The contracts of the members of the Management Board of TLG IMMOBILIEN AG contain fixed and variable re-

muneration components. For all members of the Management Board, the variable remuneration is adapted to

the requirements of Sec. 87 (1) sentence 3 AktG. It is contingent on the achievement of economic targets and

is predominantly based on multi-year assessment principles. The variable remuneration is only payable if the

course of business was sufficiently positive. The remuneration structure has been designed to ensure sustain-

able corporate development, which optimises the effects of risks and rewards of the variable remuneration.

The detailed remuneration report of TLG IMMOBILIEN AG for the 2019 financial year is published on the web-

site of the company at https://ir.tlg.eu/remuneration-report.

REMUNERATION OF (EXECUTIVE) EMPLOYEES

In January 2015, a long-term incentive programme was introduced for executives and other individual em-

ployees whose incentives – like a share option scheme – are based on the development of external factors

(e.g. the FTSE EPRA/NAREIT Europe Index) over a period of four years. The calculations and defined targets of

this programme comply with the long-term incentive regulations of the Management Board, which are set

out in the remuneration report.


https://ir.tlg.eu/agm

https://ir.tlg.eu/remuneration-report

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REMUNERATION OF THE SUPERVISORY BOARD

The remuneration of the Supervisory Board is set out in Sec. 13 of the Articles of Association. In accordance

with Sec. 13, the members of the Supervisory Board receive fixed annual remuneration of EUR 40,000. The

Chairperson of the Supervisory Board receives three times this amount and the Vice-chairperson receives one

and a half times this amount. The sum of all remuneration per member of the Supervisory Board may not

exceed EUR 150,000 (excluding VAT) per calendar year.

Additionally, members of the audit committee receive fixed annual remuneration of EUR 10,000 and mem-

bers of other committees of the Supervisory Board receive fixed annual remuneration of EUR 7,500. The

Chairperson of each committee receives double this fixed amount.

Additionally, the expenses of the members of the Supervisory Board are reimbursed. Additionally, the com-

pany has added the members of the Supervisory Board to a D&O group insurance policy for corporate bodies.

This policy features an excess for the members of the Supervisory Board in accordance with recommendation

3.8 of the Code.

No performance-based remuneration is paid to the members of the Supervisory Board. The remuneration

report contains a breakdown of the remuneration of each member of the Supervisory Board.

REPORTABLE SECURITY TRANSACTIONS AND SHAREHOLDINGS OF THE MANAGEMENT AND SUPERVISORY

BOARDS

Under Article 19 (1) of Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April

2014 on market abuse (Market Abuse Regulation), the members of the Management Board and Supervisory

Board of TLG IMMOBILIEN AG, including related parties, are obliged to disclose transactions involving shares

of TLG IMMOBILIEN AG or financial instruments relating to said shares without undue delay, or within three

working days of the date of the transaction at the latest. Pursuant to Article 19 (3) of the Market Abuse Reg-

ulation, the company publishes these transactions without undue delay after having been informed of them,

or within three working days of the transaction at the latest. The disclosures are available on the company’s

website at https://ir.tlg.eu/directors-dealings.

COMPLIANCE AS A SIGNIFICANT MANAGERIAL RESPONSIBILITY

In order to ensure adherence to the code of conduct of the Code, as well as the statutory provisions, TLG

IMMOBILIEN AG has appointed a compliance officer and a capital market compliance officer. The former in-

forms the management and employees of any relevant legal requirements. The latter maintains the insider

list of the company and informs the management, employees and business partners of the consequences of

breaches of insider trading regulations.


https://ir.tlg.eu/directors-dealings

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Office building “Theo & Luise”, Mannheim


REASONABLE RISK AND OPPORTUNITY MANAGEMENT

For TLG IMMOBILIEN AG, responsible conduct in the face of opportunities and risks is of fundamental impor-

tance. This is ensured by comprehensive opportunity and risk management which identifies and monitors

significant opportunities and risks. The system is continuously enhanced and adapted based on the changing

general conditions.

More detailed information on the risk monitoring system of the company is available in the management

report: The risk management system of TLG IMMOBILIEN AG is presented on page 35. Information on Group

accounting can be found on page 44.

COMMITTED TO TRANSPARENCY

As part of ongoing investor relations, at the start of the year, all dates of importance to shareholders, investors

and analysts are marked in the financial calendar for the duration of each financial year. The financial calendar,

which is updated continuously, is published on the website of the company at https://ir.tlg.eu/financial-calendar.

The company provides information to shareholders, analysts and journalists in line with holistic criteria. The

information is transparent and consistent for all market participants. Ad hoc announcements, press releases

and presentations of press and analysts’ conferences are published on the company’s website immediately.

Insider information (ad hoc publicity), voting rights notifications and security transactions involving members

of the Management and Supervisory Boards or their related parties (directors’ dealings) are published by TLG

IMMOBILIEN AG in line with the statutory provisions. They are also available on the company’s website at

https://ir.tlg.eu/directors-dealings.

FINANCIAL REPORTING

Once again, the Berlin office of Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart, was appoint-

ed auditor and Group auditor for 2019 by the general meeting. Before the general meeting, the auditor issued

a declaration that there were no business, financial, personal or other relationships between the auditor, its

bodies or audit managers and the company or the members of its bodies which could bring the impartiality

of the auditor into question.

MORE INFORMATION

More information on the activities of the Supervisory Board and its committees, and on its collaboration with

the Management Board, is available in the report of the Supervisory Board.

https://ir.tlg.eu/financial-calendar

https://ir.tlg.eu/directors-dealings

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MANAGEMENT REPORT ON THE POSITION OF THE COMPANY AND OF THE GROUP

22 1. COMPANY FUNDAMENTALS

22 1.1 BUSINESS MODEL, OBJECTIVES, STRATEGY

23 1.2 CONTROL SYSTEMS

23 2. ECONOMIC REPORT

23 2.1 GENERAL ECONOMIC CONDITIONS AND PROPERTY MARKETS

23 2.1.1 General economic situation

24 2.1.2 Development of the office property market

24 2.1.3 Development of investments and development projects

25 2.1.4 Development of the retail property market

25 2.1.5 Development of the hotel property market

25 2.2 COURSE OF BUSINESS

27 2.3. NET ASSETS, CASH FLOWS AND FINANCIAL PERFORMANCE, FINANCIAL AND

NON-FINANCIAL PERFORMANCE INDICATORS

27 2.3.1 Financial performance

29 2.3.2 Cash flows

30 2.3.3 Net assets

31 2.3.4 Financial performance indicators

33 2.3.5 Non-financial performance indicators

35 3. REPORT ON RISKS, OPPORTUNITIES AND FORECASTS

35 3.1. RISK AND OPPORTUNITY REPORT

35 3.1.1 Risk management system

37 3.1.2 Risk report and individual risks

44 3.1.3 Internal control and risk management system for the accounting process

44 3.1.4 Risk management in relation to the use of financial instruments

45 3.1.5 General risk situation

45 3.1.6 Opportunity report

46 3.2 FORECAST REPORT

46 3.2.1 General economic conditions and property markets

47 3.2.2 Expected business developments

20 MANAGEMENT REPORT ON THE POSITION OF THE COMPANY AND OF THE GROUPCONTENT

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48 4. CORPORATE GOVERNANCE

48 4.1. DECLARATION ON CORPORATE GOVERNANCE

48 4.2 PROPORTION OF WOMEN AND DIVERSITY

48 4.3 REMUNERATION REPORT

48 4.3.1 Foreword

49 4.3.2 Management board remuneration system

54 5. DISCLOSURES RELEVANT TO ACQUISITIONS

54 5.1 COMPOSITION OF SUBSCRIBED CAPITAL

54 5.2 MAJOR SHAREHOLDINGS

54 5.3 APPOINTMENT AND DISMISSAL OF MEMBERS OF THE MANAGEMENT BOARD AND

AMENDMENTS TO THE ARTICLES OF ASSOCIATION

54 5.4 AUTHORITY OF THE MANAGEMENT BOARD TO ISSUE NEW SHARES

55 5.5 AUTHORITY OF THE MANAGEMENT BOARD TO ACQUIRE AND UTILISE TREASURY SHARES

55 5.6 CHANGE-OF-CONTROL CLAUSES AND COMPENSATION AGREEMENTS IN THE EVENT OF A TENDER OFFER

56 6. RESPONSIBILITY STATEMENT REQUIRED BY SEC. 264 (2) SENTENCE 3 HGB, SEC. 289 (1) SENTENCE 5 HGB AND SEC. 315 (1) SENTENCE 5 HGB

56 7. ADDITIONAL INFORMATION IN ACCORDANCE WITH HGB

56 7.1 SEPARATE FINANCIAL STATEMENTS – FINANCIAL PERFORMANCE

57 7.2 SEPARATE FINANCIAL STATEMENTS – CASH FLOWS

58 7.3 SEPARATE FINANCIAL STATEMENTS – NET ASSETS

59 7.4 SEPARATE FINANCIAL STATEMENTS – RISKS AND OPPORTUNITIES

59 7.5 SEPARATE FINANCIAL STATEMENTS – FORECAST REPORT

MANAGEMENT REPORT ON THE POSITION OF THE COMPANY AND OF THE GROUP 21CONTENT

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1. COMPANY FUNDAMENTALS

1.1 BUSINESS MODEL, OBJECTIVES, STRATEGY

TLG IMMOBILIEN AG is the ultimate parent company of the TLG IMMOBILIEN Group. It manages a number of own properties as well as those of its subsidiaries, including the listed company WCM Beteiligungs- und Grund- besitz-Aktiengesellschaft for which it performs all operational activities under service contracts.

The activities of TLG IMMOBILIEN to implement its strategy with regard to its property portfolio are based on the following pillars:

Portfolio management

Portfolio management determines and monitors the strategic orientation of the portfolio with regard to

regional markets and locations, the individual asset classes and general trends in the property market in

terms of value preservation and improvement, and is responsible for property valuations.

Asset management

Asset management identifies the strategy for each property and is responsible for implementing it

through rental agreements, conversions and modernisations.

Development

Properties with previously untapped potential are to be repurposed through fundamental development

and construction measures in order to improve their structural quality, profitability and value develop-

ment. A development team steers this transformation process from preliminary planning to structural

realisation.

Property management

Property management is responsible for all of the duties of ongoing property management. This includes

maintaining tenant relations in both a practical and commercial sense as well as involving and managing

service providers as part of property management. The property management team is decentralised so

as to ensure close proximity to tenants and properties.

Transaction management

Transaction management proactively implements the portfolio strategy on the basis of its market

knowledge and networks in order to generate value growth through acquisitions and dispose of non-

strategic properties. Acquisition and disposal processes are controlled by the transaction management

team from the identification of potential transaction partners to a due diligence phase and contractual

negotiations and execution.

MANAGEMENT REPORT ON THE POSITION OF THE COMPANY AND OF THE GROUP 2019

COMPANY FUNDAMENTALS

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Our tenants as well as the quality of the properties they use and the services rendered in connection with

them are key factors in the success of our business activities. Another objective is to further optimise the

property portfolio through active asset management and strategic development measures and realise any

potential value growth. The acquisition of properties with the potential to increase in value combined with the

disposal of properties is a strategy designed to fine-tune the alignment of the overall portfolio.

1.2 CONTROL SYSTEMS

The objective of TLG IMMOBILIEN’s control system is the permanent and stable further development of the

property portfolio as well as the generation of high and sustainable earnings from its management in the

interests of the shareholders, employees and business partners. The fully integrated business plan, which

has to be prepared annually and which covers a medium-term planning horizon of five years, serves as the

basis. The key components of the business plan are rental income, management, investments and disposals,

administrative costs and finance. The sub-plans are reflected in the income, asset and financial planning of

the Group.

Monthly reports guarantee internal transparency with regard to the performance of the company during the

year, e.g. by means of the key performance indicators. In particular, the main key performance indicators

are the funds from operations (FFO), Net Loan to Value Ratio (Net LTV) and the EPRA Net Asset Value (EPRA

NAV), which are also disclosed in the quarterly reports. The drivers of these three key performance indicators,

such as rental income, weighted average lease term (WALT), vacancy rates and investments, are monitored

and reported on every month in the controlling reports. Monthly performance analyses serve to evaluate the

current performance of the company and facilitate the punctual initiation of controlling measures.

The formula for calculating the key performance indicators of the company is illustrated in the section con-

cerning financial performance indicators in this report on the position of the company and the Group.

The management of TLG IMMOBILIEN is the responsibility of the Management Board. The Supervisory Board

monitors and advises the Management Board on its managerial activities in line with the internal regulations

of the company and the expectations of its shareholders. As at the reporting date, the Supervisory Board

consisted of five members.

2. ECONOMIC REPORT

2.1 GENERAL ECONOMIC CONDITIONS AND PROPERTY MARKETS

2.1.1 General economic situation

“Economic downturn despite growth” is a succinct description of the performance of the economy last year.

Following growth of 2.5% and 1.5% in 2017 and 2018 respectively, Germany’s gross domestic product grew

by just 0.6% in 2019 according to the Federal Statistical Office (Destatis). One reason for the relatively weak

growth is the weak global economy which is damaging the export industry in particular. Conflicts such as

Brexit and the trade dispute between the USA and China are causing uncertainty amongst companies world-

wide. Nevertheless, the level of industrial activity is stabilising and could even increase again slightly in the

new year according to the Federal Ministry for Economic Affairs and Energy (BMWI).

According to the BMWI, the volume of incoming orders and turnover has evened out at a low level. At the

same time, the Business Climate Index increased slightly in autumn. Positive news is also coming from Ger-

many’s domestic economy which has remained stable. This has profited the service and construction sectors

which are driven by the domestic economy. According to Destatis, in the first eleven months of the year, the

volume of incoming orders in the main construction industry was 4% higher than in the same period in the

previous year (real and calendar-adjusted).


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The decline in growth has only had a slight impact on the job market. According to the German Federal

Employment Agency, the number of employed people subject to social security contributions was 1.5%

higher in 2019 than in the previous year, although it was not as strong as in previous years. The growth was

strongest in the fields of qualified corporate services, health care, IT and communication, care and social

affairs and in the construction industry. At 4.9% in December 2019, the unemployment rate had not changed

since the previous year. According to destatis, actual wages have increased by 1.2% compared to the previous

year. The positive situation in the job market explains the increase in private expenditure which was 2.1%

higher in the third quarter of 2019 than in the same quarter in the previous year.

Property markets performed positively; according to Jones Lang LaSalle (JLL), the German property investment

market (including housing) even set a new record with a transaction volume of EUR 91.3 bn. This represents

a 16% increase compared to 2018. The volume of transactions was at the same level as the previous year in

the third quarter of 2019. Properties worth EUR 34 bn were sold between September and December, which

represents around one third of the total annual volume. This far surpasses the previous quarterly record of

EUR 26.5 bn in 2016. At EUR 56.2 bn, 62% of the total annual volume was attributable to individual transactions.

The proportion of portfolio transactions therefore increased to 38%. Its absolute volume increased by 24%

to EUR 35 bn in 2019. Office properties increased their lead over other usage types, reaching a share of

41% (compared to 38% in 2018). Making up around one quarter of the transactions, residential properties

remained the second-strongest usage class.

2.1.2 Development of the office property market

The record in the property investment market has also affected the office rental market. According to JLL, 4.03 million square metres of office space were rented out under new agreements in the seven largest German cities in 2019. That is 1.6% higher than in 2018 and the strongest level of turnover in recent years, alongside 2017. Stuttgart was at the top of the growth ranking with turnover of 319,000 sqm – 48% higher than in the previous year. Düsseldorf saw its turnover increase by one third to 550,000 sqm and Berlin experienced 19% growth to almost 1,000,000 sqm. In contrast, Munich in particular experienced a decline, with 22% less space being rented out than in 2018. Nevertheless, the volume of turnover was higher than the ten-year average.

At 1.12 million square metres, the office completion rate passed the million threshold and reached its highest level since 2010. In the top seven cities alone, 21% more office space was added to the market than in 2018. Nevertheless, vacancy rates continue to fall and will continue to do so until 2021 when the supply can meet the demand. Cologne is at the top of the list with a 33% decrease. The rate sank to 1.8% in Berlin, making it the lowest vacancy rate in Germany. Of the 1.5 million square metres of office space currently being created in Berlin, around half has not yet been rented out.

The fact that demand is surpassing supply is reflected by rising rents for one. The average top rent in the seven metropolises increased by 5.4% in 2019. At 218 points, JLL’s top rent index for these cities is at its highest since 1992. Rental growth was strongest in Cologne and Berlin in 2019 with increases of 11% and 9% respectively.

2.1.3 Development of investments and development projects

In light of the pressure on yields and the scarcity of products, the significance of investments in development

projects has increased considerably – especially in the office segment. According to bulwiengesa, the volume

of office space in development projects (only trading development) increased by 23% in all seven A-rated

cities in the previous year – and by 32% in Berlin – whereas the development in the housing sector was

negative. These developments are due to low vacancy rates in the major office markets and rental growth in

previous years, says bulwiengesa. In some markets, pre-letting during the planning and construction phase is

now no longer uncommon. Colliers estimates that almost half of the volume of commercial property transac-

tions in Berlin in the first three quarters of 2019 was attributable to development projects.

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2.1.4 Development of the retail property market

The increase in retail turnover overtook economic growth in 2019. Destatis estimates that the adjusted

volume of retail turnover was 2.9% higher in 2019 than in the previous year. This estimate is based on retail

turnover figures from January to November 2019. Whereas retailers of food, drinks and tobacco products saw

an adjusted 3% increase in turnover in November 2019 compared to the same month in the previous year,

the volume of turnover in the retail of non-food products grew by an adjusted 2.7%. Other retailers which

sell products such as books achieved the largest growth at 6.5%. According to the German E-Commerce and

Distance Selling Trade Association (bevh), e-commerce in particular continued to grow and set a new record

with total turnover of EUR 72.6 bn in 2019. With an increase of 11.6% since 2018, the rate of online growth is

far above the average for retail as a whole.

As reported by BNP Paribas Real Estate, consumer confidence in Germany has had an impact on the transaction

figures in the retail property market. While the first three quarters were slow, the situation changed in the

fourth quarter when properties worth EUR 5.4 bn changed hands. This corresponds to 42% of the annual profit

of EUR 12.9 bn. As such, an increase of 15% was achieved for the year overall. According to BNP Paribas Real

Estate, this is not due to the number of transactions, which remained at the same level as in the previous year,

but rather on the scale of the transactions which has increased on average from EUR 29 m to EUR 34 m. Special

retail centres accounted for the largest portion of the volume of transactions (40%) with over 200 transactions

with a total value of EUR 5.1 bn. Most are situated in smaller cities with less than 100,000 residents, which

explains why a quarter of the volume of sales is attributable to those cities. The largest retail investment

market is Berlin, which grew by 8% to EUR 1.5 bn.

2.1.5 Development of the hotel property market

According to Destatis, the German hospitality sector recorded 432.2 m overnight stays from January to October 2019, which represents an increase of 3.6% over the first ten months of the previous year. Despite the weak economic growth, the hotel industry proved robust and profited from the positive buyer confidence. Germany remains an attractive travel destination and meeting point. Over half (55.3%) of the hotel operators surveyed by the industry association Dehoga rated their business situation in the summer of 2019 as good; 33.9% rated it as satisfactory and just 10.8% as poor. 39.7% of the businesses were able to increase their turnover and 25.3% their income too. However, rising operating costs caused income to decline for 40.4% of the business-es. According to Destatis, the volume of turnover in hospitality businesses increased nominally by an average of 3.4% between January and November 2019, or 0.9% in adjusted terms.

Investors expect the hotel industry to perform well. According to BNP Paribas Real Estate, the volume of transactions of EUR 5 bn just barely fell short of the record result in 2016. The group of investors most willing to spend money was special funds, which accounted for over one quarter of the investment turnover. Real estate corporations and real estate investment trusts were in second place with almost 18%.

2.2 COURSE OF BUSINESS

General statement

TLG IMMOBILIEN was able to maintain its growth successfully in the 2019 financial year. The successful con-clusion of rental agreements, remeasurements and one acquisition were the drivers of the 15% growth in real estate assets to around EUR 4.7 bn. The net operating income from letting activities increased by 6%. Overall, the Group‘s annual profit was EUR 267 m higher than in the previous year.

TLG IMMOBILIEN classifies the properties in its portfolio into a strategic portfolio and a non-strategic portfolio. The strategic portfolio has comprised the office, retail and hotel asset classes, as well as the invest asset class since 30 June 2019. The invest asset class contains properties whose strategies involve future and sometimes even various stages of ongoing development project measures, and as such are expected to undergo a funda-mental transformation. The primary purpose of the properties in the office, retail and hotel asset classes is to generate sustainable earnings. Nevertheless, these properties also have the potential to generate additional income and value through active asset management and strategic investments. Properties in the non-stra-tegic portfolio are to be disposed of over the next few years when the situation in the market is favourable.

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As at 31 December 2019, the property portfolio of TLG IMMOBILIEN comprised 357 properties (previous year 409) with a fair value (IFRS) of around EUR 4.719 bn (previous year around EUR 4.109 bn). Besides acquisitions (14.5%), the effects of disposals (–27.0%) and investments in the portfolio (8.6%), the increase of around EUR 610 m is due to remeasurements (104.7%) in particular.

In terms of the property value as at 31 December 2019, 75.8% of the properties in the invest asset class were previously in the office asset class and the other 24.2% are retail properties. The figures from the previous year have been adjusted here in light of the new portfolio structure including the new invest asset class.

The property values have developed differently depending on the portfolio strategy:

in EUR m

On a like-for-like basis, i.e. without factoring in the acquisitions and disposals in 2019, its value increased by 17.4% due to the positive market developments, especially in Berlin, and the portfolio and asset management measures of TLG IMMOBILIEN. With regard to the strategic portfolio, the increase was 18.9%; the non-strategic portfolio experienced a 5.3% decline.

The annualised in-place rent of EUR k 13,078 which declined in the reporting year due to property disposals is counteracted by rental income of EUR k 5,520 through acquisitions. Overall, the annualised in-place rent has decreased by 0.5% year-over-year to EUR k 225,939 (previous year EUR k 227,154).

The EPRA Vacancy Rate for the entire portfolio decreased slightly to 3.1% (previous year 3.3%). The weighted average lease term (WALT) of all temporary rental agreements has decreased from 6.1 years to 5.6 years.

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31/12/2019 31/12/2018

4,719

4,109

Strategicportfolio total

4,485

3,710

Office Retail Hotel Non-strategicportfolio

Strategic portfolio by asset class

2,0881,765

1,084 1,081

346 327 234399

Total Invest

968

537

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2.3. NET ASSETS, CASH FLOWS AND FINANCIAL PERFORMANCE, FINANCIAL AND

NON-FINANCIAL PERFORMANCE INDICATORS

2.3.1 Financial performance

TLG IMMOBILIEN closed the 2019 financial year extremely successfully with net income of EUR k 578,319.

The net income was EUR k 267,373 higher than in the previous year. The EUR k 85,482 increase in the re-sult from the remeasurement of investment property was one key driver. The net income from companies measured at equity of EUR k 49,817 also had a positive effect. The result in the previous year was influenced negatively by the amortisation of goodwill totalling EUR k 164,724 resulting mainly from the takeover of WCM. The table below presents the financial performance:

in EUR k01/01/2019 –

31/12/201901/01/2018 –

31/12/2018 Change Change in %

Net operating income from letting activities 209,331 196,726 12,605 6.4

Result from the remeasurement of investment property 638,366 552,884 85,482 15.5

Result from the disposal of properties 20,533 7,833 12,700 162.1

Other operating income 1,756 1,996 –240 –12.0

Personnel expenses –18,720 –16,505 –2,215 13.4

Depreciation and amortisation –1,728 –165,755 164,027 –99.0

Other operating expenses –22,997 –16,128 –6,869 42.6

Earnings before interest and taxes (EBIT) 826,541 561,051 265,490 47.3

Net income from companies measured at equity 49,817 0 49,817 n/a

Financial income 388 628 –240 –38.2

Financial expenses –44,257 –32,109 –12,148 37.8

Result from the remeasurement of derivative financial instruments –18,940 –7,904 –11,036 139.6

Earnings before taxes 813,549 521,666 291,883 56.0

Income taxes –235,230 –210,720 –24,510 11.6

Net income 578,319 310,946 267,373 86.0

Other comprehensive income (OCI) 893 489 404 82.6

Total comprehensive income 579,212 311,435 267,777 86,0

The net operating income from letting activities was EUR k 209,331 in 2019 and was EUR k 12,605 higher than in the previous year due to the acquisition of a property and the more profitable operational management of the property portfolio. Rental income developed as follows:

Rental income

in EUR k

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2017 2018 2019

168,310

223,886 229,767

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At EUR k 638,366, the result from the remeasurement of investment property was EUR k 85,482 higher than in 2018. The outstanding development of the property portfolio‘s value reflects the positive development of market rents predominantly in Berlin and in the office asset class. Progress in investment projects and the successful conclusion of new rental agreements also had a positive effect on the value.

Compared to the same period in the previous year, the result from the disposal of properties increased by EUR k 12,700 to EUR k 20,533. Essentially, it comprises remeasurements of a higher volume of sold properties than in 2018.

The other operating income of EUR k 1,756 was lower than in the previous year, due largely to lower prior- period income.

In the 2019 financial year, personnel expenses increased by EUR k 2,215 to EUR k 18,720 due to the increased number of employees and individual salary adjustments. Higher expenses resulting from the LTI scheme also had an effect.

Depreciation and amortisation mainly comprised expenses from the impairment of goodwill in 2018.

Compared to the same period in the previous year, other operating expenses increased by EUR k 6,869 to EUR k 22,997. This increase was due primarily to consulting costs in connection with the planned merger with Aroundtown as well as property transactions.

The net income from companies measured at equity of EUR k 49,817 was due to the proportional annual profit of Aroundtown.

In 2019, financial expenses increased by EUR k 12,148 compared to the previous year, reaching EUR k 44,257. In particular, this was due to additional interest expenses for the bonds issued in May and September 2019 as well as expenses for the premature repayment of loans and interest rate hedges in connection with the optimisation of the financing structure.

In the 2019 financial year, there were expenses of EUR k 18,940 from the remeasurement of derivative finan-cial instruments (previous year EUR k –7,904). The negative result is due primarily to changing market interest rates and the resulting market valuation of interest rate hedges on the loans.

The income taxes comprise ongoing income taxes of EUR k 13,324 and deferred taxes of EUR k 221,906. The increase in deferred tax expenses was due primarily to the higher remeasurement of investment property.

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2.3.2 Cash flows

Cash flow statement

The following cash flow statement was generated using the indirect method under IAS 7. The proceeds and cash paid in the 2019 financial year resulted in an increase in cash and cash equivalents, due primarily to the issuance of two bonds and one hybrid bond, each with a nominal value of EUR k 600,000. The acquisition of the shares of Aroundtown totalling EUR k 1,530,208 in September 2019 was the most significant line item with the opposite effect.

in EUR k01/01/2019 –

31/12/201901/01/2018 –


1. Net cash flow from operating activities 131,922 130,011 1,911 1.5

2. Cash flow from investing activities –1,554,015 –129,751 –1,424,264 n/a

3. Cash flow from financing activities 1,792,150 –47,843 1,839,993 n/a

Net change in cash and cash equivalents 370,057 –47,583 417,640 n/a

Cash and cash equivalents at beginning of period 153,893 201,476 –47,583 –23.6

Cash and cash equivalents at end of period 523,950 153,893 370,057 240.5

The net cash flow from operating activities increased by EUR k 1,911 compared to the previous year and was EUR k 131,922 in the 2019 financial year, due primarily to higher current surpluses from letting activities.

The negative cash flow from investing activities of EUR k 1,554,015 was largely influenced by the cash out-flow of EUR k 1,530,208 for the acquisition of Aroundtown‘s shares, the cash paid for the acquisition of new properties and investments in existing properties totalling EUR k 139,966. Purchase prices were paid for office properties in Bonn and Berlin in the 2019 financial year.

The proceeds from the disposal of properties, which increased by EUR k 42,948 to reach EUR k 67,973 in the reporting year, had the opposite effect, as did the proceeds of EUR k 66,490 from the disposal of subsidiaries which held properties.

In particular, the cash received from property disposals was attributable to the Aronia retail portfolio, two residential and commercial buildings in Rostock, the government services building in Gera, “Falke Forum” in Chemnitz and the commercial property “Plastic Logic” in Dresden.

The cash received from the disposal of subsidiaries which held properties was attributable to the net total from the disposal of a retail portfolio less the loan taken out by the buyer and other line items resulting from the disposal of the companies.

Essentially, the positive cash flow from financing activities was due to the issuance of the three bonds in May and September 2019, each with a nominal value of EUR k 600,000, as well as a capital increase in June 2019 which generated gross proceeds of EUR k 222,092. The repayment of loans totalling EUR k 143,990 as part of the optimisation of the financing structure and the payment of a dividend of EUR k 94,140 to the shareholders had the opposite effect.

Overall, due to the aforementioned cash flows in 2019, the cash and cash equivalents increased by EUR k 370,057 to EUR k 523,950.

The cash and cash equivalents consisted entirely of liquid funds. In the reporting year, the liquidity of TLG IMMOBILIEN was secure at all times.

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2.3.3 Net assets

The following overview summarises the asset and capital structure. Liabilities and receivables due in more than one year have all been categorised as non-current.

in EUR k 31/12/2019 31/12/2018 Change Change in %

Investment property/prepayments 4,709,615 4,067,550 642,065 15.8

Shares in companies measured at equity 1,580,641 0 1,580,641 n/a

Other non-current assets 34,880 31,688 3,192 10.1

Financial assets 18,098 13,517 4,581 33.9

Cash and cash equivalents 523,950 153,893 370,057 240.5

Other current assets 35,125 54,199 –19,074 –35.2

Total assets 6,902,309 4,320,847 2,581,462 59.7

Equity 3,446,647 2,157,239 1,289,408 59.8

Non-current liabilities 2,606,254 1,489,621 1,116,633 75.0

Deferred tax liabilities 697,209 480,489 216,720 45.1

Current liabilities 152,199 193,498 –41,299 –21.3

Total equity and liabilities 6,902,309 4,320,847 2,581,462 59.7

At EUR k 4,709,615, the asset side is dominated by investment property as well as prepayments made towards them. The increase of EUR k 642,065 compared to the previous year is due primarily to measurement gains.

The development of investment property is largely the result of fair value adjustments (EUR k 638,366), acquisitions (EUR k 88,419), the capitalisation of construction activities (EUR k 52,284) and reclassifications as assets held for sale (EUR k –155,947).

Compared to the previous year, the proportion of investment property in the total assets has decreased from 94% to 68%. This was due to the acquisition of 15% of the shares of Aroundtown SA, Luxembourg for EUR k 1,580,641 which are recognised as shares in companies measured at equity, as well as the strong liquidity resulting from the bonds issued in September 2019.

Compared to the previous year, the equity of the Group has increased by EUR k 1,289,408 to EUR k 3,446,647. Essentially, this was due to the issuance of a hybrid bond in September 2019 with a nominal value of EUR k 600,000, a capital increase in late June 2019 which generated gross proceeds of EUR k 222,092 and the net income of EUR k 578,319. The payment of a dividend of EUR k 94,140 had the opposite effect.


Equity 3,446,647 2,157,239 1,289,408 59.8

Total equity and liabilities 6,902,309 4,320,847 2,581,462 59.7

Equity ratio in % 49.9 49.9 0.0 pp

The equity ratio remained unchanged from the previous year at 49.9%.

Overall, the liabilities of the TLG IMMOBILIEN Group have increased by EUR k 1,292,054 or 60%.

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The non-current liabilities excluding deferred taxes which essentially comprised liabilities due to financial institutions and corporate bonds as at the reporting date increased by EUR k 1,116,633 in the 2019 financial year. The main driver of this was the bonds issued in May and September 2019, each with a nominal value of EUR k 600,000.

The significant increase in deferred tax liabilities in the reporting year was largely characterised by the highly positive development of the value of the property portfolio.

Current liabilities decreased by EUR k 41,299. Due to the maturity structure of the loans, the current liabilities due to financial institutions have decreased significantly compared to the previous year as at 31 December 2019.

2.3.4 Financial performance indicators

FFO development

Funds from operations (FFO) are a key performance indicator for the TLG IMMOBILIEN Group.

FFO is a key indicator used by real estate companies with properties to judge their long-term profitability andperformance in the capital market environment. The figure is essentially the result of the net income for theperiod adjusted for the results from disposals, property measurement and the measurement of derivative financial instruments, deferred taxes and extraordinary items.

in EUR k01/01/2019 –

31/12/201901/01/2018 –


Net income 578,319 310,946 267,373 86.0

Income taxes 235,230 210,720 24,510 11.6

EBT 813,549 521,666 291,883 56.0

Result from the disposal of properties –20,533 –7,833 –12,700 162.1

Result from the remeasurement of investment property –638,366 –552,884 –85,482 15.5

Result from the remeasurement of derivative financial instruments 18,940 7,904 11,036 139.6

Depreciation and amortisation 1,728 165,755 –164,027 –99.0

Net income from companies measured at equity –49,817 0 –49,817 n/a

Dividend from investments 17,167 0 17,167 n/a

Attributable to non-controlling interests –1,146 –1,265 119 –9.4

Net income attributable to hybrid capital providers –5,049 0 –5,049 n/a

Other effects1 16,080 4,083 11,997 293.8

Income taxes relevant to FFO –4,577 –3,436 –1,141 33.2

FFO 147,976 133,990 13,986 10.4

Average number of shares outstanding in thousands2 107,811 102,842

FFO per share in EUR 1.37 1.30 0.07 5.4

1 The other effects include (a) personnel restructuring expenses (EUR k 1,094; previous year EUR k 1,512), (b) transaction costs (EUR k 11,233; previous year EUR k 2,549), (c) refinancing costs/repayment of loans (EUR k 3,753; previous year EUR k 22). 2 Total number of shares as at 31 December 2018: 103.4 m, as at 31 December 2019: 112.1 m. The weighted average number of shares was 102.8 m in 2018 and 107.8 m in 2019.

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FFO was EUR k 147,976 in 2019. The increase by 10.4% or EUR k 13,986 compared to the previous year is due predominantly to the higher net operating income from letting activities and the dividend from investments. This resulted from the acquisition of the shares of Aroundtown in the third quarter of 2019 and corresponds to the proportional value of the dividend forecast for 2019 based on the amount of time they were held in the financial year and the number of shares. Higher financial expenses due largely to the bonds issued in 2019 had the opposite effect, as did the proportion of net income attributable to the hybrid capital providers. The net income attributable to hybrid capital providers resulting from the issuance of a hybrid bond in September 2019 is also deducted from earnings in order to calculate FFO as these funds cannot potentially be paid out to the shareholders of TLG IMMOBILIEN.

Despite the larger number of shares, FFO per share was higher than in the previous year at EUR 1.37. The num-ber of shares has increased due to the capital increase over the course of the reporting year and the newly issued shares of TLG IMMOBILIEN AG as part of a swap for WCM shares (due to the settlement offer under the control agreement concluded by both companies).

In the 2018 financial year, TLG IMMOBILIEN forecast that its FFO in 2019 would be between EUR 140 m and EUR 143 m. This forecast was most recently revised upwards to around EUR 147 m in the Q3 financial report. As FFO reached EUR 148.0 m, the forecast for 2019 was met.

Net Loan to Value (Net LTV)

As a ratio between net debt and real estate assets and investment assets, the Net LTV is another internal key performance indicator for the company.


Investment property (IAS 40) 4,707,397 4,067,527 639,870 15.7

Advance payments on investment property (IAS 40) 2,218 23 2,195 n/a

Owner-occupied property (IAS 16) 8,119 8,104 15 0.2

Non-current assets classified as held for sale (IFRS 5) 3,018 33,080 –30,062 –90.9

Inventories (IAS 2) 734 737 –3 –0.4


Real estate assets and investment assets 6,302,127 4,109,471 2,192,656 53.4

Interest-bearing liabilities 2,621,574 1,579,442 1,042,132 66.0


Net debt 2,097,624 1,425,549 672,075 47.1

Net Loan to Value (Net LTV) in % 33.3 34.7 –1.4 pp

Net debt plus hybrid bond 2,688,468 1,425,549 1,262,919 88.6

Adjusted Net Loan to Value (Net LTV) in % 42.7 34.7 8.0 pp

The Net LTV was 33.3% in the Group by 31 December 2019. It has declined by 1.4 percentage points compared to the same period in the previous year, due primarily to the acquisition of Aroundtown’s shares by means of bonds issued in September 2019 and the positive development of the value of investment property.

Due to the hybrid bond issued in September, this report also contains an adjusted Net LTV which factors this financial instrument – which is recognised as equity in the consolidated financial statements – into the net debt as liabilities. As at the reporting date, the adjusted net LTV was 42.7%.

As such, it was within the long-term ceiling of 45% for the Net LTV announced most recently in the 2018 annual report.

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EPRA Net Asset Value (EPRA NAV)

The EPRA Net Asset Value (EPRA NAV) is another key performance indicator of TLG IMMOBILIEN. It discloses anet asset value on a consistent basis that can be compared with other companies.


Equity of the shareholders of TLG IMMOBILIEN 2,833,787 2,133,924 699,863 32.8

Fair value adjustment of fixed assets (IAS 16) 26,658 17,168 9,490 55.3

Fair value adjustment of real estate inventories (IAS 2) 1,182 1,182 0 0.0

Fair value of derivative financial instruments 25,700 8,604 17,096 198.7

Deferred taxes 775,808 554,845 220,963 39.8

EPRA Net Asset Value (EPRA NAV) 3,663,135 2,715,723 947,412 34.9

Number of shares in thousands 112,073 103,385

EPRA NAV per share in EUR 32.69 26.27

The EPRA NAV was EUR k 3,663,135 in the 2019 financial year, which equates to an EPRA NAV per share of EUR 32.69. The EPRA NAV has increased by EUR k 947,412 compared to 31 December 2018.

Essentially, the increase was due to the high net income for the period of EUR k 578,319 which was largely influenced by the highly positive development of the value of the property portfolio and the successful course of business, as well as the capital increase on 27 June 2019, which generated gross proceeds of EUR k 222,092. The payment of a dividend of EUR k 94,140 to the shareholders had a significant opposite effect.

2.3.5 Non-financial performance indicators

TLG IMMOBILIEN only uses non-financial performance indicators to manage the company indirectly. The man-agement is aware that the satisfaction of tenants and employees as well as the company’s good reputation as a reliable partner in the real estate sector are extremely important factors for long-term success in the market.

As at 31 December 2019, TLG IMMOBILIEN had 158 employees (previous year 132), not including trainees or inactive contracts. The increase in the number of employees is due primarily to the recruitment of new employees.

It is the stated objective of the company to qualitatively and quantitatively strengthen its team by recruiting specific personnel. In 2019, the company recruited 43 new members of staff. The average length of service at TLG IMMOBILIEN is around 8.7 years.

The further professional and personal development of staff is a key component of personnel management. In order to expand the knowledge and skills of its personnel, the company promotes advanced training courses and occupational studies, and regularly organises specialised workshops designed to refresh its employees’ knowledge.

TLG IMMOBILIEN AG also trains its staff for its own requirements. In the future, the company will continue to provide cooperative education in business administration, especially with a focus on the real estate sector and apprenticeships.

TLG IMMOBILIEN is committed to providing its employees with optimal working conditions in well-equipped, convenient locations. Flexible working hours, home office opportunities and voluntary benefits such as job tickets, health days, food allowances and discounts on sports club memberships are just as much a part of what the company provides as a value-oriented corporate culture.

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In 2019, TLG IMMOBILIEN AG carried out an employee survey for the fourth time. The high rate of participation signals the interest of the staff in continuing to help actively shape the development of TLG IMMOBILIEN AG. The majority of its employees see TLG IMMOBILIEN AG as an extremely attractive employer and are proud of their company. Almost all employees are aware of how they are contributing to the overall success of the company. Overall, the perceived attractiveness of TLG IMMOBILIEN as an employer by its employees has increased further compared to the previous year.

TLG IMMOBILIEN traditionally maintains good long-term relationships with its tenants. This is reflected in long-term rental agreements with stable rental income. Regional employees in TLG’s offices in Berlin, Frankfurt/Main, Dresden, Erfurt, Leipzig and Rostock ensure that tenants receive support on site. They possess extensive market experience and have close ties with numerous private and institutional market players. This allows TLG IMMOBILIEN to present itself consistently as a reliable partner to its existing tenants, potential tenants, investors and local authorities.

TLG IMMOBILIEN is an active member of the German Property Federation (ZIA), Germany’s leading property federation, which is also represented in the Federation of German Industry (BDI).

It remains a member of the European Public Real Estate Association (EPRA) in order to support the promotion, development and representation of the European public real estate sector.

Additionally, TLG IMMOBILIEN is a member of the German Corporate Governance Initiative (Initiative Corporate Governance der deutschen Immobilienwirtschaft e.V.). Its objective is to codify the principles of the German Corporate Governance Code for the real estate industry and therefore anchor value-focused management guided by professionalism, transparency, integrity and sustainability.

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3. REPORT ON RISKS, OPPORTUNITIES AND FORECASTS

3.1. RISK AND OPPORTUNITY REPORT

3.1.1 Risk management system

TLG IMMOBILIEN operates in an economic environment characterised by considerable dynamism and com-plexity. These tie in with frequently changing general economic, technological, political, legal and social conditions which can make it more difficult to meet targets or pursue long-term strategies. However, business opportunities can also arise. TLG IMMOBILIEN AG has a risk management system in place to enable early detection, monitoring and assessment of the risks typical for the industry. This meets the legal requirements (AktG, KonTraG) as well as the requirements of the Corporate Governance Code.

This system continuously assesses and monitors risks in order to counter ominous developments before they occur. The risk management system monitors and assesses the risks in processes, and the internal auditors monitor and assess the general risks. Suitable adjustments are made when the general situation changes. The auditor also audits the early risk detection system together with the annual financial statements in accordance with Sec. 317 (4) HGB.

A holistic risk management system is now in place throughout the TLG IMMOBILIEN Group. In this regard, the risks in the WCM sub-group are identified and assessed separately by the risk officers, making it possible to report and aggregate the risks for the WCM sub-group separately.

As an integral component of all corporate processes, the risk management system follows an iterative cycle with the following processes:

Risk identification

Risk analysis and quantification

Risk communication

Risk management

Risk control

Risk identification

Risks are identified in the departments of TLG IMMOBILIEN using the “bottom up” method. The risk situation from the perspectives of the various departments and to which TLG IMMOBILIEN as a whole is exposed is assessed, discussed and summarised by risk management and the risk officers.

Using the summarised information provided by the risk officers, the risk management of TLG IMMOBILIEN then compiles an inventory of risk by grouping the individual risks into risk types.

In terms of organisation and human resources in the field of controlling, the risk management is based at the main offices of TLG IMMOBILIEN. However, the various departments of the Group are also involved due to the expertise required to deal with the major risk factors on a daily basis.

Besides the risk officers, all employees of the company are obliged to immediately submit an urgent risk report – together with substantial proposed measures – to the risk managers and Management Board if they should become aware of any extraordinary circumstances.

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Risk analysis and quantification

All risks were assessed on a quarterly basis, with a risk horizon of twelve months and on the basis of the potential loss and probability of occurrence. The probability of occurrence was quantified as follows:

Negligible: 0 to 10%

Low: > 10 to 25%

Medium: > 25 to 50%

High: > 50%

The potential losses were categorised as follows:

Negligible: up to EUR 0.3 m

Low: > EUR 0.3 m to EUR 1.0 m

Medium: > EUR 1.0 m to EUR 5.0 m

High: > EUR 5.0 m to EUR 10.0 m

Very high: > EUR 10.0 m

The reference values for the estimation of each loss were derived from the business plan.

The loss categories and probabilities of occurrence produce a 16-field matrix. This matrix converts the analysis into a specific amount of damage, i.e. the value at risk. The value at risk of TLG IMMOBILIEN is calculated by the risk management by aggregating the various risk types. Risks with an extremely high potential loss in excess of EUR 10.0 m are outside of the 16-field matrix and are monitored particularly closely.

The changes to the aggregate total risk of TLG IMMOBILIEN (the value at risk) are measured in line with IFRS in the equity of the TLG IMMOBILIEN Group, on a quarterly basis, relative to the last quarterly or annual financial statements. Covenant agreements, which are a component of many loan agreements of TLG IMMOBILIEN, are taken into consideration. These agreements normally set out a minimum equity ratio which the company must maintain.

The aggregate value at risk was always lower than its reference value in the financial year. The existence of the company was not in jeopardy during the financial year.

Risk communication

Besides an annual risk report on the development of each risk in the financial year ended, the Management Board of TLG IMMOBILIEN receives quarterly reports on the risk situation of the company. These reports cover all risk types. Any urgent risk reports that were filed are brought to the attention of the Management Board immediately and documented in the monthly control report. The quarterly report contains information on the aggregate value at risk as well as key changes in significant risks. Significant risks include risks with medium, high or very high potential losses and probabilities of occurrence.


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Risk management

Measures designed to avoid, prepare for, limit, reduce, pass on or compensate for risks are an active compo-nent of the risk management system.

The conception of risk-reducing measures is an important component of the risk management system of TLG IMMOBILIEN. These measures and their degree of success are documented.

Risk control

The plausibility of changes to the estimated risks is examined by risk management. On an annual basis, the central risk management checks the suitability of the existing risk management system for the business model of TLG IMMOBILIEN. If necessary, conceptual changes and developments take place.

The internal auditors ensure that the documentation, assessment and reporting processes of the risk manage-ment system are effective and in order. If any process should prove to be unsatisfactory, recommendations are made on how to proceed.

A scheduled audit of the risk management system was carried out in the 2019 reporting year. 3.1.2 Risk report and individual risks

The business activity of TLG IMMOBILIEN has intrinsic risks of a general economic nature as well as risks specific to the real estate sector. In the environment of the capital and property markets, TLG IMMOBILIEN is exposed to risks over which it has no control. Such risks are dependent on various geopolitical and eco-nomic developments that might, for example, affect interest rates, inflation, general legal conditions, rents or demand in the transaction market. In turn, this can result in far-reaching changes to, among other aspects, property values, the letting situation, transaction volumes and liquidity.

In the following, individual risks will be described as a part of the risk management system which can have significant influence on the net assets, cash flows and financial performance of the Group. The risks have been separated into property-specific and company-specific risks.

As the Group has a uniform risk management system, the risks for the 2019 financial year also include matters attributable to both TLG IMMOBILIEN and the WCM sub-group.

Property-specific risks

Transaction risk

Besides the efficient operational management and development of the property portfolio, active portfolio management entails the strategic expansion and optimisation of the portfolio through acquisitions and disposals. If planned property acquisitions do not come to pass, there is a risk of additional management or unplanned consequential costs. Additionally, a risk can arise if purchase agreement obligations are not fulfilled or prove disadvantageous to TLG IMMOBILIEN in sales processes. Purchase agreements can give rise to a bad debt risk when, for example, procedural costs are incurred in connection with unwinding, or interest losses occur due to the delayed receipt of capital.

Risks can arise as part of property acquisitions if concealed defects in the property are not identified or contractual agreements are entered into that lead to additional expenditure. Likewise, if the acquisition falls through, the costs incurred by the acquisition process so far are at risk of being wasted.


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To avoid or reduce marketing risks, the Group carries out real estate transactions using standard general process steps. These include the removal of obstacles preventing sales, the procurement of permits and the identification of contaminated sites and pollution, as well as reasonable due diligence during acquisitions. The transaction teams have at their disposal standard contracts to use as a basis for purchase contract ne-gotiations. Acquisitions are subject to a predefined framework of strategic acquisition criteria and operative implementation requirements, for example in the form of comprehensive due diligence processes. As at the reporting date, the potential loss of transaction risks was considered medium. Given the current market sit-uation and the increasingly difficult acquisition process, the probability of occurrence is considered medium. Bad debt from sales and leasing

TLG IMMOBILIEN has a high-quality portfolio of properties and generates stable cash flows from rental in-come. Significant impairment of the cash flows, and thus also the cash flows and financial performance of the company, can arise from a loss of payments from important anchor tenants or insolvency on their part. Contractual partners are selected carefully in order to minimise the payment risk in a preventive manner. Additionally, standard hedging instruments such as guarantees, fixed charges, suretyships, letters of comfort, deductions and deposits are used when necessary. Structured claims management is used to counter poten-tial bad debt. The bad debt risk generally has a high potential loss. Its probability of occurrence is considered medium.

Vacancy risk

The vacancy risk is that new rental agreements and extensions of rental agreements cannot be agreed at standard market rates. It is subject to economic fluctuations and market cycles which affect market rents and demand for space in particular. Such a development can have a negative effect on the letting situation and consequently on the planned development of the net operating income from letting activities as well as the funds from operations. TLG IMMOBILIEN minimises this risk by closely monitoring the market with extensive analyses of renting statistics (the preparation of market reports), continuously monitoring expiring rental agreements, regularly consulting real estate brokers, entering into long-term rental agreements and maintaining a presence on social media. Measures designed to avoid or minimise the risk also include the punctual identification of expiring rental agreements and taking tenant requirements into consideration in order to secure a contractual extension. As the majority of the properties in the portfolio of TLG IMMOBILIEN are managed by employees of the Group, the company is in close contact with its tenants. Disposals of non-strategic properties are also intended to minimise the risk. As at the reporting date, both the potential loss and probability of occurrence remain low.

Environment and contaminated sites

The risk of contaminated sites and the environmental risk are of significance in terms of the potential loss. For example, properties which prove to have contaminated sites – which were previously unknown – will lead to additional unexpected expenses in connection with removing any danger to public order and safety in line with the current laws and regulations. This also includes the risk under Sec. 4 (6) of the German Federal Soil Protection Act (BBodSchG). Under the Federal Soil Protection Act, as the previous owner of a plot of land, TLG IMMOBILIEN is obliged to redevelop the land if ownership thereof was transferred after 1 March 1999 and if TLG IMMOBILIEN was or had to have been aware of harmful soil changes or contamination (eternal liability). This is also the case if the current owner cannot be called on to redevelop the land due to a lack of assets. In general, there are public declarations of exemption for environmental contamination of land in the portfolio of TLG IMMOBILIEN caused before 1 July 1990; therefore, the company is not exposed to any significant risks. Environmental contamination caused after 1 July 1990 has either been factored into the measurement of the property (thus reducing its value) or is not considered significant. If an environmental or pollution risk should arise, this could potentially have a significant influence on the net assets, cash flows and financial perfor-mance of the company. The potential loss of the environmental risk and the risk of contaminated sites is still considered very high, yet the probability of occurrence is considered negligible.


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Operational management

Operational management encompasses the risks resulting from operating costs to be borne by TLG IMMOBILIEN, from maintenance and from failure to maintain safety in the properties.

By continuously analysing contractual conditions with suppliers and service providers, TLG IMMOBILIEN strives to counter the potential risk of operating costs. In the reporting year, the company continues to consider both the potential loss and probability of occurrence medium.

The risk that necessary maintenance measures cannot be completed on time, thus resulting in unforeseen disruptions to technical or structural equipment, is always a factor. If defects are identified late or not at all or if the need for maintenance is inaccurately gauged, this can result in higher expenses than expected, which will affect the financial performance of the company. To minimise this risk, the properties are regularly inspected by employees or technicians who can promptly identify any defects and hold a regular dialogue with each tenant. As at the reporting date, the potential loss of the risk was considered medium. Due to the takeover of sub portfolios which have so far been managed externally from 2020 onwards, there is a risk that an unexpected or as yet unknown need for maintenance will be identified. As such, the probability of occurrence is also considered medium.

The risk from failure to maintain safety arises if the owner of the property fails to fulfil its duty to secure local sources of danger that might illegally damage the life, health, freedom or property of another person. The regular inspections also allow TLG IMMOBILIEN to fulfil its duty to maintain safety on the premises. Due to ongoing construction measures, the potential loss is still considered high although the probability of occur-rence is negligible.

Investments

TLG IMMOBILIEN pursues an investment strategy which continuously optimises and increases the value of its property portfolio through renovations for tenants, modernisation measures and, to a certain extent, new builds. New and contemporary usage concepts that will remain consistent with the market in the long term also are being tested and selected development projects on land in the portfolio are being implemented on the basis of plots of land with the potential for development. Such investment activities can involve risks of overspending, delayed completion, structural defects and the loss of construction crew contractors. Furthermore, official formalities can pose a risk to the progress of development projects. TLG IMMOBILIEN will counter these risks by continuously checking the creditworthiness and reliability of construction companies and business partners and by hedging with guarantees. The implementation entails extensive project management, regular inspections on site, consistent follow-up management, strict deadline management and regular meetings with the relevant authorities in order to ensure that the implementation remains on schedule.

The opportunity to claim subsidies (e.g. investment subsidies and grants) occasionally arises as part of invest-ments in real estate. If a subsidy is accepted but its conditions are not met, repayment claims can be filed against the recipient of a subsidy in subsequent years. Therefore, TLG IMMOBILIEN regularly checks to ensure that it is meeting the conditions of ongoing subsidy agreements. If such a risk materialises, it can have a negative impact on the net assets, cash flows and financial performance of the company.

The potential loss has been upgraded to very high due to the intensification of development project activities. In contrast, the probability of occurrence has been downgraded from medium to low due to arrangements and negotiations with business partners and authorities.


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Property measurement

The fair value of the property portfolio is subject to fluctuations caused by external and property-specific factors. Key external factors with significant influence over measurement gains and losses are the market rent and interest rates, as well as the general demand for properties as an asset class. Property-specific factors primarily encompass the renting situation and the condition of the property. Even a small deviation from the previous market value of the property portfolio generates a very high potential absolute loss and can have a considerable impact on the statement of comprehensive income and significantly impair the net assets of the company.

The property portfolio is regularly and systematically evaluated by independent external experts in order that problematic developments can be identified as quickly as possible. In order to reduce the measurement risk, TLG IMMOBILIEN also carries out tenant-oriented property management and performs necessary renovations and other technical measures for tenants. In the 2019 financial year, the fair value calculation found no indi-cations of a significant decrease in the value of the property portfolio.

Due to the currently good letting situation and the persistently favourable market conditions, the probability of occurrence of the property measurement risk remains medium.

Company-specific risks

Investment risk

The investment risk encompasses all risks resulting from not fully consolidated interests. It also encompasses risks in connection with fully consolidated interests of TLG IMMOBILIEN, provided that they cannot be allocated to any other risk type. This includes, for example, risks posed by complex investment structures which require increased transparency and management in order to preclude negative effects on the course of business of the Group. Additionally, risks can arise if administration or management services are rendered externally or if corrections need to be made to the statement of financial position, especially as a result of share deals. TLG IMMOBILIEN can counter the investment risks by defining external management services and integrationresponsibilities with clear processes. Comprehensive due diligence and impairment testing can minimise thelikelihood of the statement of financial position requiring correction.

For the first time, the investment in Aroundtown SA has given rise to risks that are not limited to companies within the Group. A change in the value of Aroundtown‘s shares can have a significant impact on the net assets of the company. The financial figures prepared in accordance with IFRS and capital market standards (in particular the EPRA NAV), the market’s estimated value of the company reflected by its share price and the supervisory role it plays by having a representative on the management board of Aroundtown are important factors with regard to Aroundtown and affect the stability of the value of Aroundtown’s shares.

The potential loss of the risk remains very high and its probability of occurrence is considered medium.

Financing

The strategy of TLG IMMOBILIEN is focused on growth and as such may require additional equity measures and loans in future. The conditions and the availability of financing depend significantly on the changes in interest rates and the general banking and market environments. Thus, higher financing costs may arise for the company in connection with external financing instruments if, for example, fixed interest rates are agreed at the wrong time or not at all. Financial risks can result from the transaction costs of equity and external financial instruments if, in spite of preparations, they fail to materialise or if the actual transaction costs are higher than expected. Likewise, if the markets in which the banks operate begin to slow down, this could make banks more cautious about providing finance or cause them to increase their rates. Changes in the general conditions can negatively affect the cash flows and financial performance of the company.


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Other financing risks might arise if the contractual terms of finance agreements (e.g. covenants), terms and conditions of capital market measures or ratings figures are not adhere to. The company covers the risk of a breached covenant by regularly inspecting the covenants and, if necessary, taking steps to adhere to the covenants. No significant covenants were breached in the reporting year.

The probability of occurrence is considered medium, yet the potential loss has been identified as negligible due to the persistently low interest rates.

Due to the moderate debt ratio with regard to the fair value of the properties, TLG IMMOBILIEN continues to consider itself fully eligible for financing, even for more restrictive loan conditions.

Liquidity

The management of the Group pays attention to the risk of being unable to fulfil payment obligations on time. In order to analyse future changes in liquidity, a liquidity forecast for at least six months is created for the expected cash flows and updated on a regular basis. In the reporting year, the liquidity of TLG IMMOBILIEN was secure at all times. However, future liquidity shortages – e.g. due to unfavourable developments of macroeconomic factors – cannot be completely ruled out, which could result in negative effects on the cash flows and financial performance of the company. The liquidity reserves of the company increased significantly due to the successful capital market measures in the reporting year. As such, the probability of occurrence and potential loss of a potential liquidity shortage can be downgraded to low.

In the context of the merger with Aroundtown, there is generally a risk that diverse banks and the holders of the bond which matures in 2024 exercise a special right of termination (due to a change of control) and cause the liabilities to mature. For more information, see section H.14 of the notes.

Tax risk

The tax risk is the danger that unforeseen matters or incorrect tax documents affect the tax burden and thus the results and liquidity of the company. This applies to turnover and income tax in particular and includes the potential impact of the risk of changes to tax laws. During past audits, the financial authorities have never detected any omitted matters which could increase the tax burden of the company. The utilisation of a tax option requires that TLG IMMOBILIEN meet certain legal requirements in future periods as well so as to profit from the positive tax effects. If these statutory requirements are not met, the potential loss of the tax risk, including the potential loss from changes to the German Real Estate Transfer Tax Act (GrEStG) as part of a real estate transfer tax reform with regard to share deals, was considered very high as at the end of the financial year, although the probability of occurrence is considered negligible.

Legislative risk

The business activities of TLG IMMOBILIEN are affected by changes in the legal framework and to regulations. Fundamental changes in the legal framework, e.g. in landlord and tenant legislation, can lead to financial risks or increased expenses and therefore affect the cash flows and financial performance of the company. As there is no recognisable concrete, quantifiable risk from impending and/or expected changes to legislation or regulations, this risk has not been changed compared to the previous year and has been classified as having a negligible probability of occurrence and a medium potential loss.


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Personnel

Competent and motivated employees are essential to the success of TLG IMMOBILIEN. TLG IMMOBILIEN strengthens its attractiveness as an employer and counters any potential risk from insufficient personnel with measures such as performance and potential analyses to illustrate development perspectives, a performance-based remuneration system and additional benefits, as well as professional development opportunities. Another risk is that additional direct or indirect personnel expenses occur if employees do not meet expectations in terms of quality or quantity or are absent for extended periods due to illness. If skilled, committed and motivated employees and managers cannot be found, trained and retained, this can have a negative effect on the development of the company. The risk of unexpected employee turnover has increased for TLG IMMOBILIEN due to the announced merger with Aroundtown SA in particular. The company considers the potential loss low and the probability of occurrence medium.

Costs of litigation and deadlines

TLG IMMOBILIEN generally faces the risk that the costs of legal disputes, legal advice, contract reviews and comparisons will increase more than expected. Additionally, it faces the risk that deadlines are not adhered to. Provisions have been established against risks from ongoing litigation. Deadlines are documented in a litigation database and in a separate calendar. These deadlines are monitored regularly.

Following the takeover of WCM, a risk emerged of an ongoing legal challenge in connection with the control agreement entered into with WCM. The expected expenses have been factored into the net income for the period in the reporting year. Furthermore, the action was rejected by the court of first instance in the report-ing year. In light of this, the potential loss and probability of occurrence remain negligible.

Press and image

The business activities of TLG IMMOBILIEN can be impeded by negative representations in the media to such an extent that the revenue of the company is jeopardised. This can damage the TLG IMMOBILIEN brand and lower the price of its shares. The public image of TLG IMMOBILIEN is to be strengthened and improved, pre-dominantly by means of media communication and transparency in the market, i.e. with regard to property transactions and increased leasing. Due to the positive image of TLG IMMOBILIEN on the capital market and the careful preparation of documents due to be published, the probability of damage to the image of the company continues to be considered negligible, although the potential loss is very high.

Data and IT risks

All aspects of business require the careful use of data. As data are entered into a variety of IT systems, the data can be falsified, deleted or wrongly interpreted due to application errors, the failure to follow bookkeep-ing and/or work instructions, interference by third parties or external influences. Even an IT system migration can lead to significant defects in data and in turn inaccurate conclusions for internal and external reports when the data are processed. This can lead to massive disruptions in the course of business and cause unfavourable conclusions to be drawn and decisions to be made. Likewise, the data in databases are at risk of falling into the wrong hands and being misused to the detriment of TLG IMMOBILIEN. This can lead to negative effects on the business activities of the company. The risk concerns both internal confidentiality and protection against external third parties. The risk therefore concerns the entirety of the data protection regulations, both techni-cal and organisational, as well as the general misuse of data.

In order to reduce this risk, access privileges are regularly inspected and regular plausibility checks are carried out. The company also has detailed procedures and guidelines. The IT system used for accounting purposes is audited by the auditor on an annual basis as part of the audit of the consolidated financial statements and annual financial statements.


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Following the successful launch of the ERP system SAP S4 HANA, the potential loss of the data quality risk was downgraded from very high to high. The probability of occurrence of the risk is now considered low.

With the entry into force of the European General Data Protection Regulation (GDPR) on 25 May 2018, the potential loss of data protection risks is very high in accordance with the maximum fines for data breaches prescribed by the GDPR. The probability of occurrence has increased slightly compared to the previous year as a fine was imposed on a real estate company for the first time in the reporting year. Nevertheless, it is considered negligible as an information security management system (ISMS) is in place. The preservation of confidentiality is a major component of this system. Other data protection measures such as secure pass-words and a structured access privilege assignment and revocation process have been put in place gradually in connection with the introduction of a new EPR system as part of the ISMS and are applied consistently.

Internal and external offences

Internal and external offences lead directly to financial damage and/or losses through image damage. The damage ranges from damage caused by internal manipulation (e.g. fraud, embezzlement, theft of cash) to external cases of fraud such as the manipulation of sales, invitations to tender and the awarding of contracts. This also includes offences in connection with the company’s position on the market (insider trading). Due to the dual-control principle which is applied to all transactions and the company’s internal approval and control system, the potential loss and probability of occurrence are still considered negligible. Employees are regu-larly trained in issues of compliance.

Risks from force majeure

Instances of force majeure such as natural disasters, fires or flooding can cause damage to the property of TLG IMMOBILIEN which is not covered fully or in some cases at all by insurance. As protective measures in terms of fire prevention, burglary and theft prevention, regular data back-ups and insurance are in place to take this into account, the resulting risk is still considered negligible.

The coronavirus pandemic, which has been having an increasingly large impact in Germany since early March 2020 was not addressed specifically in the risk assessment as at 31 December 2019. Nevertheless, as at the preparation of the annual financial statements, the situation does pose risks to TLG IMMOBILIEN which could have a negative effect on the Group’s net assets, financial position and cash flows.

These risks might affect the general operation of the company and, for example, have a significant impact on its business operations in the form of a large number of sick personnel, quarantines or a business closure by the authorities. Generally speaking, the Group possesses technical equipment which enables all employees to work from outside of the office and is therefore well prepared.

Additionally, the coronavirus pandemic could give rise to property-specific risks such as bad debt, a failure to conclude new rental agreements or changes to the market value of properties in the portfolio. TLG IMMOBILIEN does not currently expect the German economy to suffer lasting damage and therefore does not expect demand for commercial properties or lettable areas to decline.

Directly affected sectors such as the hotel industry, leisure industry and non-food retail account for approximately 25% of the annualised in-place rent overall and are therefore not a dominant element in TLG IMMOBILIEN’s portfolio. Furthermore, the Group has sufficient liquidity reserves to compensate for a partial loss of rent even over an extended period of time.

Overall, the potential impact of the risks to TLG IMMOBILIEN arising from the coronavirus pandemic is considered very high, although their probability of occurrence is considered medium.

Overall, the Management Board does not consider the coronavirus pandemic a threat to the continued exis-tence of the company.


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3.1.3 Internal control and risk management system for the accounting process

The Management Board of TLG IMMOBILIEN is responsible for the proper preparation of the consolidated financial statements and the annual financial statements. To ensure their proper preparation, an accounting-related internal controlling and risk management system is required. The internal control and risk management system is designed to ensure that business events are correctly and completely accounted for and disclosed in accordance with legal requirements, generally accepted accounting principles, the International Financial Reporting Standards (IFRS) as well as internal guidelines, in order to give the readers of the consolidated financial statements and annual financial statements an accurate representation of the company. TLG IMMOBILIEN has set up an internal control system under observance of decisive legal guidelines and standards typical for the industry and a company of its size. The system comprises a variety of control mechanisms and is an essential component of the business processes. The control mechanisms are subdivided into integrated mechanisms and downstream controls. The integrated mechanisms include, for example, technical controls secured by the system, internal guidelines, the dual-control principle for high-risk business processes and the documentation of all business transactions. Moreover, regular downstream checks are carried out in the form of, among others, monthly internal reporting, analyses of significant items in the statement of profit or loss or the statement of financial position and budget checks.

All of the responsibilities as part of the accounting process are clearly defined. The accounting department is an expert partner for specialised issues and complex accounting matters, and it consults external expert advisers on individual issues if necessary. The dual-control principle – which features a clear separation of the roles of approval and execution – is a central element of the accounting process. The accounting process is supported by IT software which controls the privileges of the users in accordance with the requirements of the internal guidelines. The Group has central accounting and central controlling. The internal accounting and allocation regulations of the Group are regularly examined and, if necessary, adjusted.

The Group auditing department is an independent organisational unit and is not involved in the operative business activities. It monitors the compliance of processes and the effectiveness of the internal control and risk management system. This includes accounting processes and the operative business activities being examined in topic-oriented checks.

The auditor of the financial statements audits the risk management system and internal control system as part of the audit of the consolidated financial statements and annual financial statements. Amongst other things, the Supervisory Board and its audit committee are involved with the accounting process, the internal control system and the risk management system. They use the results of the auditor of the annual financial statements and the auditing department as a basis for monitoring the effectiveness of the internal control and risk management system, especially with regard to the accounting process. 3.1.4 Risk management in relation to the use of financial instruments

Dealing with risks as regards the use of financial instruments is regulated by guidelines at TLG IMMOBILIEN. In accordance with these guidelines, derivative financial instruments are used exclusively for hedging loans with variable interest rates and not for trading purposes. There is generally an economic hedging relationship between the underlying transaction and the hedging transaction.

For the purpose of risk monitoring and limitation, the market values of all interest rate hedges are assessed on a monthly basis. The risk of bad debt on the part of the banks with which the interest rate hedges were created is considered low, as all of the banks have a sufficiently high credit standing. The recognition of val-uation units in the statement of financial position was discontinued in 2017.

As it is safely hedged against the variable cash flows, TLG IMMOBILIEN is exposed to a low liquidity risk.


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3.1.5 General risk situation

The Management Board of TLG IMMOBILIEN considers the aggregate value at risk over the course of the 2019 financial year as typical. Compared to the previous year, the risk situation has remained stable. Suitable preventive and, if necessary, countermeasures were taken whenever risks with a medium, high or very high potential loss and probability of occurrence were identified.

None of the risks described above threaten the portfolio of TLG IMMOBILIEN, either individually or in their entirety. 3.1.6 Opportunity report

In recent years, TLG IMMOBILIEN has been able to increase the spread of its commercial property portfolio throughout Germany by taking over WCM Beteiligungs- und Grundbesitz-AG and through other acquisitions and establish itself as a leading company in the German commercial property market. As an active portfolio manager, the company has extensive networks in its core markets and possesses comprehensive market expertise. The deliberate proximity of the company’s sites to each regional market allows for better access to tenants, institutional and private market participants, service providers and authorities. This paves the way for opportunities for the company to acquire and dispose of properties for the best possible prices with a view to optimising its portfolio.

By establishing a clear organisational structure adapted to the strategic expansion of TLG IMMOBILIEN and maintaining a local presence, the company is able to integrate newly acquired properties into its operational processes quickly and efficiently.

With regard to renting, TLG IMMOBILIEN ensures that demand for space from long-term, creditworthy tenants remains high by managing its property portfolio with a focus on its clients. This involves building modernisa-tion measures such as adaptation to higher technological standards which in turn can present new opportu-nities in terms of lowering the volume of vacant space. Likewise, modernisation measures and renovations for tenants in the portfolio serve to increase client satisfaction and tie tenants to the company for longer. The long-term rental agreements in the portfolio of TLG IMMOBILIEN have an average remaining term of approx. 5.6 years.

The portfolio of TLG IMMOBILIEN contains diverse properties with the potential for additional space and devel-opment which can be realised through extensions or new builds in order to increase both the current income from the property and its market value. Ongoing and other planned development projects demonstrate that TLG IMMOBILIEN is actively seizing the opportunities of its portfolio through strategic investments.

The announced merger with Aroundtown SA, which was initiated in the light of an increasing yield compression, will create potential synergies in a range of areas which can have a positive effect on the course of business and the economic development of both companies. The merger to form one platform will create one of the leading holders of commercial properties in Europe. In particular, a better rating for the merged company can lead to substantial annual savings in connection with financial expenses and in turn to a considerable increase in the company‘s value.

Additionally, the merger could create potential on the operational and property levels. Essentially, operating synergies concern economies of scale and scope resulting from a larger portfolio that can lead to cost advan-tages and therefore have a positive effect on the key performance indicator FFO. Property-specific opportu-nities can arise from announced development projects as it might be possible to realise existing potential for development faster with the larger platform and the resources available to it.

The high degree of transparency of TLG IMMOBILIEN with regard to the capital market, investors and analysts will support the successful issuance of more financial products such as bonds on capital markets with a view to being able to operate with flexibility when it comes to implementing the growth strategy.


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3.2 FORECAST REPORT

The forecasts in the forecast report are based on expectations. The development of TLG IMMOBILIEN depends on a number of factors, some of which cannot be controlled by the company. The forecasts of the forecast report represent the current expectations of the company. These forecasts are therefore subject to risk and uncertainty. The actual performance of TLG IMMOBILIEN may vary, either positively or negatively.

3.2.1 General economic conditions and property markets

Overall economy

According to the Federal Ministry for Economic Affairs and Energy (BMWI), the German economy was, despite a phase of weakness, not in crisis before the first effects of the coronavirus pandemic were felt in early March 2020. The BMWi expected GDP growth to recover to a positive 1% in 2020. Multiple factors were expected to contribute to this: Global trade was expected to accelerate again, causing German exports and related investments in particular to grow with it. Additionally, the domestic market was expected to be robust as private spending was driven by growing employment rates and higher wages. Furthermore, it was assumed that the German government would support the growth with stimuli such as higher child benefits and income tax relief.

In light of the current measures implemented to slow the spread of the coronavirus pandemic, the original forecasts which were based on the state of the market in late 2019 no longer apply to the next few months at the very least and will not apply without reservation thereafter due to the currently unforeseeable medium and long-term consequences of the coronavirus pandemic. Fundamentally, it is likely that the long-term consequences will prove less severe for the real estate industry than for other branches of trade as it is reasonable to assume that existing rental agreements will initially continue to exist and that expected bad debt will not threaten the existence of the company, at least in the short term.

Property market

According to JLL studies, the majority of the top seven cities were expected to experience a decline in the turnover of their office property rental markets by 4% on average to around 3.9 million square metres in 2020. Even the growing rate of construction of new buildings was not expected to be enough to cause vacancy rates in the top seven cities to rise. On the other hand, an average vacancy rate of 2.9%, a new low in the developments so far, was expected.

Given the sharp decline in vacancy rates in many A-rated German cities and the expectation that the number of office workers would continue to rise, the office development project landscape continued to seem advantageous in 2020 – both factors applied to Berlin in particular, according to the market research institute bulwiengesa AG in Berlin. In light of the pressure on yields, investors were expected to become increasingly focused on development projects which they could later hold in their portfolios. The lack of space, competition with other usage types and the limited available capacity of the construction industry were all considered limiting factors. JLL expected around 1.5 million square metres of office space to be created in Berlin over the next three years to 2022 – this would be a significant increase compared to previous years.

Compared to other asset classes, CBRE expected retail to offer higher yields in 2020 and therefore attract investment capital. The German market was considered attractive due to its size, low unemployment rates and rising wages. As such, the volume of transactions in the coming year was expected to reach around EUR 10 bn. Online retail was still seen as the greatest challenge facing bricks-and-mortar retail.


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With regard to the hotel asset class, according to BNP Paribas Real Estate, investors in 2020 were even expected to look for investment opportunities away from the A-rated cities as the level of interest in hotels was still considered strong.

Overall, the situation in every asset class where TLG IMMOBILIEN is active was decidedly positive before the outbreak of the coronavirus. Even with consideration for all of the uncertainty surrounding the duration and impact of the coronavirus pandemic, TLG IMMOBILIEN does not currently consider it likely that the develop-ment of the property markets will suffer any long-term negative effects.

3.2.2 Expected business development

Based on the current state of its knowledge, TLG does not expect the coronavirus pandemic to have a lasting negative effect on the business success of TLG IMMOBILIEN. However, the crisis had not yet been overcome by the time the annual and consolidated financial statements were prepared. Additionally, as no robust data are yet available with regard to the macro-economic impact, the coronavirus pandemic represents a significant uncertainty factor in the expected development of TLG IMMOBILIEN’s business.

Therefore, the company will continue to operatively manage its property portfolio with a view to generating value. Unless any major unexpected action becomes necessary, the company expects property-related expenses that must be borne by the owner to develop in relation to rental income as in 2019. Due to the coronavirus pandemic, it is possible that parts of the property portfolio will be affected by bad debt. However, the German government’s package of measures which is likely to come into effect shortly is expected to help soften the blow for tenants and landlords. Irrespective of government support measures, TLG IMMOBILIEN sees itself soundly prepared as sales with hotels of EUR 17.6 million in 2019 only had a 7.6% share in annual in-place rent. Securities from hotels amount to approximately 45% of annual net rental income.

TLG IMMOBILIEN considers itself an active portfolio manager and will therefore continue to strive to expand its own property portfolio in line with its portfolio strategy through acquisitions and disposals in 2020 when the opportunities arise in the market. Property prices have increased significantly in the core markets of TLG IMMOBILIEN recently, so the company expects few opportunities to acquire properties that meet its require-ments in terms of quality and returns.

The indirect improvement in creditworthiness through the merger with Aroundtown and the historically low interest rates make it reasonable to expect TLG IMMOBILIEN to remain capable of obtaining debt at attractive rates directly or through Aroundtown in 2020. In line with the plans of the company, there will be little need to refinance in 2020. TLG IMMOBILIEN will continue to pursue its objective of keeping its adjusted net LTV, including the hybrid bond, at below 45% (previous year: adjusted net LTV of 42.7%).

With consideration for the contractually secured acquisitions and expected disposals by the time the financial statements were prepared, TLG IMMOBILIEN expects its funds from operations (FFO) in the 2020 financial year to be between EUR 153 m and EUR 157 m (EUR 148 m in 2019) initially. However, this does not factor in the currently unforeseeable effects of the coronavirus pandemic or potential additional acquisitions and disposals in 2020 which could further increase or decrease the FFO in 2020. Likewise, this evaluation does not factor in potential operating synergies or other effects that might result from the merger with Aroundtown.

Not taking the currently unforeseeable effects of the coronavirus pandemic into consideration, TLG IMMOBILIEN expects its EPRA Net Asset Value, which is largely influenced by the development of the value of the property portfolio, to increase slightly by the end of the 2020 financial year. This will require the company to not incur any significant unforeseeable expenses and the property market not to change significantly.


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4. CORPORATE GOVERNANCE

4.1. DECLARATION ON CORPORATE GOVERNANCE

The declarations on corporate governance to be issued pursuant to Sec. 289f and Sec. 315d HGB and the

corporate governance report – which are not elements of the management report – are available online

at https://ir.tlg.eu/corporategovernance and https://www.wcm.de/en/company/corporate-governance.

Pursuant to Sec. 317 (2) sentence 4 HGB, the disclosures under Sec. 289f and Sec. 315d HGB are not included

in the audit carried out by the auditor.

4.2 PROPORTION OF WOMEN AND DIVERSITY

Following the entry into force of the German act on equal participation of women and men in executive po-sitions in the private and public sector on 1 May 2015, listed companies are obliged to set future targets for the proportion of women on their management and supervisory boards as well as on the two management levels below the management board, and to set implementation deadlines within which they intend to reach their target proportion of women (targets and implementation deadlines).

Therefore, under Sec. 111 (5) AktG, the Supervisory Board must set the targets and implementation deadlines for the Management and Supervisory Boards of the company.

In its meeting on 23 May 2017, the Supervisory Board set the target proportion of women on the Supervisory Board at 16.67% which must be met continuously until 30 June 2022. The Supervisory Board is not currently meeting this target.

Initially, the minimum proportion of women on the Management Board of TLG IMMOBILIEN AG shall remain at 0% for the implementation deadline ending on 30 June 2022. All of the members of the Management Board are male.

In line with Sec. 76 (4) AktG, the Management Board must set the targets and implementation deadlines for the proportion of women on the first and second management levels beneath the Management Board.

In its meeting on 29 June 2017, the Management Board set the minimum proportion of women on the first management level below the Management Board at 10% and the minimum proportion of women on the second management level below the Management Board at 30%; the proportion of women on these man-agement levels may not fall below this target before 30 June 2022. These targets were met in 2019.

In addition to the diversity-related targets for the composition of the Management Board and Supervisory Board described in the declaration on corporate governance, the Supervisory Board prepared a profile of skills and expertise.

4.3 REMUNERATION REPORT

The remuneration report explains the structure and the amount of remuneration allocated to the Manage-ment and Supervisory Boards. It complies with the statutory regulations and the recommendations of the German Corporate Governance Code.

4.3.1 Foreword

The Supervisory Board defines the total salary of each member of the Management Board and adopts the remuneration system for the Management Board and examines it regularly.

New Management Board contracts were concluded with Mr Finkbeiner and Mr Karoff in January 2018. These contracts were terminated by means of dissolution agreements on 31 October 2018.



https://www.wcm.de/en/company/corporate-governance

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By resolution of the Supervisory Board on 13 September 2018, Mr Klinck and Mr Overath were appointed as members of the Management Board and received their employment contracts with effect from 1 October 2018.

By resolution of the Supervisory Board on 28 May 2019, Mr Bar-Hen was appointed as a member of the Management Board and its CEO with effect from 3 June 2019.

4.3.2 Management Board remuneration system

The remuneration system factors in the joint and personal work of the members of the Management Board to ensure sustainable corporate success. The remuneration system is based on performance and success, in which regard long-term orientation, suitability and sustainability are key criteria.

The remuneration of the Management Board comprises a fixed remuneration component (base remuner-ation), a variable remuneration component with a short-term incentive (STI) and a variable remuneration component with a long-term incentive (LTI).

The Supervisory Board set out the initial levels of the LTI for 2019 in its meeting on 20 March 2019.

Another Management Board member, the CEO Mr Barak Bar-Hen, was appointed in 2019; his remuneration from 3 June 2019 onwards has been taken into account proportionately.

in EUR k Barak Bar-Hen Gerald Klinck Jürgen Overath

Base remuneration 500 450 450

Short-term variable remuneration (STI) 300 250 250

Long-term variable remuneration (LTI) 400 300 300

Total remuneration 1,200 1,000 1,000

The members of the Management Board will strive to hold an agreed target number of shares in the company (at the very least) for the duration of their employment as members of the Management Board. In order to achieve this target, the company can pay 25% of the annual STI and LTI as shares until the target number of shares has been reached.

Fixed remuneration component

The base remuneration is paid out to the members of the Management Board in twelve equal monthly instalments.

On top of the base remuneration, the members of the Management Board receive contractually defined additional benefits1. Furthermore, the company has taken out a D&O insurance policy for the members of the Management Board. Under the German Corporate Governance Code, the D&O insurance policy features a statutory deductible which, if a claim is filed, consists of 10% of the claim, up to 1.5 times the fixed annual remuneration of the member of the Management Board in question.

Short-term incentive (STI)

Every year, the members of the Management Board and its Chairperson receive a short-term incentive (STI) which is calculated and determined by the Supervisory Board on the basis of the proportionate achievement of targets (target FFO per share and management targets) in each financial year starting with the year in which the person in question assumed the role.

The target FFO per share is defined by the Supervisory Board at the start of each financial year. The manage-ment targets are agreed with each member of the Management Board before the start of the financial year.

1 Essentially from the fixed compensation for use of a private car and for private pension funds


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The STI is the product of (i) the target STI, (ii) the FFO per share factor and (iii) the performance factor; the maximum annual STI is EUR k 375 for the members of the Management Board and EUR k 450 for the Chair-person, and no STI will be paid at all in a financial year if the FFO per share is less than 75% of the target FFO per share.

The FFO per share factor is 1.00 if the final FFO per share for the year corresponds to the target FFO per share. For every full percentage point of a difference between the final FFO per share for the year and the target FFO per share, the factor changes by 0.02 up to a maximum of 1.50 for the members of the Management Board and a maximum of 1.2 for the Chairperson.

The performance factor is defined by the Supervisory Board on the basis of progression towards management targets and is between 0.8 and 1.2.

At the end of each financial year, the Supervisory Board determines the rate of joint achievement for the members of the Management Board. The STI is payable along with the monthly instalment of the basic annual salary following the approval of the consolidated financial statements of the company.

Long-term incentive (LTI)

In addition to a short-term incentive, the members of the Management Board are entitled to a long-term incentive based on the long-term performance of the company. The achievement rate for the long-term incentive is based on the achievement of the agreed targets at the end of every four-year period (the performance period) and is determined by assessing the level of progress towards the targets.

Starting from the year in which the person in question assumed the role (Mr Klinck and Mr Overath in 2018, Mr Bar-Hen in 2019), the LTI is paid in the form of virtual shares (performance shares) which are converted into cash bonuses and paid out as such after the end of each LTI performance period with consideration for the achievement of LTI targets.

The key parameters for the LTI for the members of the Management Board are the performance of the EPRA NAV (target NAV per share) and the performance of the company’s shares (total shareholder return) by the end of the LTI performance period compared to the development of the total shareholder return of the LTI reference index, the capped version of the FTSE EPRA/NAREIT Europe Index (total shareholder return perfor-mance).

The target NAV per share for the performance period is defined by the Supervisory Board at the start of each financial year.

The parameters are weighted against one another in a ratio of 50% (NAV per share development) and 50% (total shareholder return performance factor).

At the start of each four-year period, the number of assigned virtual shares is defined by dividing the agreed target amount by the EPRA NAV per share calculated on the basis of the annual financial statements for the previous year.

The LTI is the product of the number of virtual shares allocated for the financial year, the share price at the end of every fourth year plus the sum of the dividend per share paid during the LTI performance period and the LTI target performance factor (the total LTI factor). The performance factor is based equally on progress on the NAV per share factor and the total shareholder return performance factor. Each performance factor can have a value of between 0% and 200%. If the NAV per share falls short of the target by more than 15 percentage points, the performance is scored as zero. Likewise, if the total shareholder return of the company‘s shares is at least 15% poorer than the total shareholder return of the reference index, the total shareholder return performance factor is scored as zero.


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The long-term incentive for each year of activity is paid to the member of the Management Board with the salary statement issued for the month after the preparation of the financial statements in the fourth financial year. The LTI is capped at a maximum of EUR k 750 (for Mr Klinck and Mr Overath) and EUR k 1,000 (for the CEO Mr Bar-Hen), yet it is also capped in that the total remuneration including base remuneration and STI may not exceed EUR k 1,500 (for Mr Klinck and Mr Overath) or EUR k 1,700 (for the CEO Mr Bar-Hen) in any one financial year.

The following virtual shares were provided to the members of the Management Board in 2019:

Long-term incentive

Barak Bar-Hen1 Gerald Klinck Jürgen Overath12019 tranche

Settlement date 03/06/2019 20/03/2019 20/03/2019

Number of virtual shares 8,882 11,420 11,420

Fair value as at the settlement date (EUR k) 341 429 429

Intrinsic value of the virtual shares as at 31/12/2019 (EUR k) 378 486 486

1 Proportionate remuneration from 3 June 2019

With regard to the share-based payments, expenses of EUR k 761 were recognised for Mr Bar-Hen (previous year EUR k 0), expenses of EUR k 824 were recognised for Mr Klinck (previous year EUR k 257) and expenses of EUR k 741 were recognised for Mr Overath in the financial year (previous year EUR k 240).

Total remuneration for the Management Board in 2019 and 2018

In the 2019 and 2018 financial years, the members of the Management Board did not receive any advances or credit.

Benefits receivedBarak

Bar-Hen1

Gerald Klinck2

Jürgen Overath2, 3

Peter Finkbeiner

Niclas Karoff

in EUR k 2019 2019 2018 2019 2018 2018 2018

Fixed remuneration 289 450 112 439 112 333 333

Fringe benefits 89 135 21 65 71 40 26

Subtotal of fixed remuneration 378 585 133 504 183 373 359

Short-term variable remuneration (STI) 0 125 0 125 0 300 300

Long-term variable remuneration (LTI) 0 0 0 0 0 1,857 1,857

Subtotal of variable remuneration 0 125 0 125 0 2,407 2,407

Total remuneration 378 710 133 629 183 2,780 2,766

1 Proportionate remuneration from 3 June 20192 Proportionate remuneration from 1 October 2018 3 Proportionate remuneration in 2019 because of long-term illness

Bonuses paid Barak Bar-Hen1 Gerald Klinck2 Jürgen Overath2

Peter Finkbeiner

Niclas Karoff

in EUR k 20192019 min.

2019max. 2019

2019 min.

2019max. 2018 2019

2019min.

2019max. 2018 2018 2018

Fixed remuneration 289 289 289 450 450 450 112 439 439 450 112 333 333

Fringe benefits 89 89 89 85 85 85 71 65 65 89 71 40 26

Subtotal of fixed remuneration 378 378 378 535 535 535 183 504 504 539 183 373 359

Short-term variable remuneration (STI) 175 0 262 250 0 375 63 250 0 375 63 250 250

Long-term variable remuneration (LTI) 341 0 583 429 0 750 93 429 0 750 93 419 419

Subtotal of vari-able remuneration 516 0 845 679 0 1,125 156 679 0 1,125 156 669 669

Total remuneration 894 378 1,223 1,214 535 1,660 339 1,183 504 1,664 339 1,042 1,028


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Total earnings from the company according to the German Commercial Code (HGB)

Barak Bar-Hen1

Gerald Klinck2

Jürgen Overath2

Peter Finkbeiner

Niclas Karoff

in EUR k 2019 2019 2018 2019 2018 2018 2018

Fixed remuneration 289 450 112 439 112 333 333

Fringe benefits 89 85 71 65 71 40 26

Subtotal of fixed remuneration 378 535 183 504 183 373 359

Short-term variable remuneration (STI) 175 313 63 313 63 250 250

Long-term variable remuneration (LTI) 341 429 93 429 93 145 145

Subtotal of variable remuneration 516 742 156 742 156 395 395

Total remuneration 894 1,277 339 1,246 339 768 754

1 Proportionate remuneration from 3 June 20192 Proportionate remuneration from 1 October 2018

Current pensions were paid to two former managing directors in 2018 and 2019. The expenses totalled EUR 0.168 m in 2018 and EUR 0.166 m in 2019. The provisions formed for the pensions amount to EUR 2.475 m.

Payments in the event of premature termination of employment

If the contract of a member of the Management Board is terminated prematurely, payments to that member of the Management Board may not exceed the value of two years’ worth of remuneration (the exit compen-sation cap) or the value of the remuneration for the remaining term of the contract. The exit compensation cap is calculated on the basis of the total remuneration for the past full financial year and if appropriate also the expected total remuneration for the current financial year (see recommendation 4.2.3 of the German Corporate Governance Code).

Death benefits

If the member of the Management Board should die during the term of the contract, the remuneration – including STI and LTI – shall be determined up to the date of the termination of contract as a result of death and disbursed to the member’s surviving dependants in line with the management contract. Furthermore, as joint creditors, the widow and children – up to the age of 25 – shall be entitled to the continued payment of all remuneration for the rest of the month in which the member died plus the three following months.

Supervisory Board remuneration system

The Supervisory Board was established on 5 September 2014. In line with the Articles of Association, all Supervisory Board remuneration is payable at the end of each financial year. Members of the Supervisory Board who have only been part of the Supervisory Board or one of its committees for a part of the financial year will receive proportional remuneration for that financial year.


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The members of the Supervisory Board receive fixed basic annual remuneration of EUR k 40. The Chairperson of the Supervisory Board (Mr Sascha Hettrich) receives three times this amount and the Vice-chairperson (Mr Ran Laufer) receives one and a half times this amount. Members of the audit committee receive fixed annual remuneration of EUR 10,000 and members of other committees of the Supervisory Board receive fixed annual remuneration of EUR 7,500. The Chairperson of each committee receives double this fixed amount. The mem-bers of the Supervisory Board are members of the following committees:

in EUR kPresidential and

nomination committee Audit committee

Capital market and acquisitions committee

Project development committee

Michael Zahn1 C M C

Dr. Michael Bütter1 M M M

Sascha Hettrich2 M C

Sascha Hettrich (C)3 C M C M

Jonathan Lurie3 M M M

Helmut Ullrich C M M2

Stefan E. Kowski4

Klaus Krägel3 C

Ran Laufer (VC)3 M M

1 Until 21 May 2019 2 Until 20 May 2019 3 From 21 May 2019 4 Until 15 May 2019 C = Chairperson M = Member VC = Vice-chairperson

The sum of all remuneration plus the remuneration for membership on the supervisory boards and similar

managerial bodies of Group companies may not exceed EUR k 150 (excluding VAT) per calendar year per

member of the Supervisory Board, regardless of the number of committee memberships and roles.

Supervisory Board remuneration in detail

Remuneration paid or to be paid to the members of the Supervisory Board for the 2019 financial year:

in EUR kSupervisory

Board

Presidential and

nomination committee

Auditcommittee

Capital market and acquisitions committee

Project development

committee VAT Total

Michael Zahn1 50,000.00 6,250.00 4,166.67 6,250.00 0 12,666.67 79,333.33

Dr. Michael Bütter1 25,000.00 3,125.00 0 3,125.00 3,125.00 6,531.25 40,906.25

Helmut Ullrich 40,000.00 0 20,000.00 7,500.00 3,125.00 13,418.75 84,043.75

Sascha Hettrich4,5 93,333.33 12,500.00 10,000.00 10,000.00 10,000.00 24,700.00 154,700.00

Stefan Kowski1 16,666.67 0 0 0 0 0 16,666.67

Jonathan Lurie2 36,666.67 5,000.00 6,666.67 5,000.00 0 0 53,333.33

Klaus Krägel3 26,666.67 0 0 0 10,000.00 6,966.67 43,633.33

Ran Laufer3 40,000.00 5,000.00 0 0 5,000.00 9,500.00 59,500.00

1 Proportionate at 5/12; resigned in May 2 Proportionate at 11/12; appointed from February 2019 3 Proportionate at 8/12; appointed from May 2019 4 Proportionate at 8/12; Chairperson from May 2019 5 Cap (according to Sec. 13.3 of the Articles of Association, Group-wide)

A D&O group insurance policy has also been taken out for the members of the Management and Supervisory Boards; this policy contains a deductible that meets the requirements of Sec. 93 (2) sentence 3 AktG and recommendation 3.8 (3) in conjunction with (2) of the German Corporate Governance Code.


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5. DISCLOSURES RELEVANT TO ACQUISITIONS

5.1 COMPOSITION OF SUBSCRIBED CAPITAL

As at 31 December 2019, the share capital was EUR 112,073,461.00, comprising 112,073,461 no-par bearer shares with a value of EUR 1.00 per share. The share capital is fully paid-in. There are no other share types. All shares provide the same rights and duties. Every no-par value share grants one vote in the general meeting. This does not include any treasury shares held by the company; these do not grant the company any rights. 5.2 MAJOR SHAREHOLDINGS

As reported on 15 March 2019, Amir Dayan/Maria Saveriadou held 29.33% of the voting rights of the company as at 31 December 2019 through their interest in the third-party company Ouram Holding S.à r.l. On that date, the total number of voting rights was 103,444,574.

On 20 February 2020, it was reported that Amir Dayan/Maria Saveriadou held 10.41% of the voting rights of the company through their interest in the third-party company Ouram Holding S.à r.l. The total number of voting rights referred to by the voting rights notification was 112,073,731.

According to the voting rights notification dated 20 February 2020, Aroundtown SA holds a total of 77.76% of the company’s voting rights – essentially directly – due to the takeover offer. On that date, the total number of voting rights was 87,168,686. The call option described in section 3 of the announcement made by Aroundtown SA on 13 February 2020 in accordance with Sec. 23 (1) sentence 1 no. 3 of the German Securities Acquisition and Takeover Act (WpÜG) expired on 14 February 2020 upon the closing of Aroundtown SA‘s voluntary public takeover offer for all of the shares of TLG IMMOBILIEN AG.

Please note that the last disclosed number of voting rights might since have changed within the thresholds without the shareholders being obliged to inform the company.

All publications by TLG IMMOBILIEN AG in connection with notifications of investments in the reporting year

and beyond are available on the website of TLG IMMOBILIEN AG under INVESTOR RELATIONS > FINANCIAL

NEWS.

5.3 APPOINTMENT AND DISMISSAL OF MEMBERS OF THE MANAGEMENT BOARD AND AMENDMENTS TO THE

ARTICLES OF ASSOCIATION

Members of the Management Board are appointed and dismissed in accordance with Sec. 84 AktG. There are no significant supplementary or deviating provisions in the Articles of Association or rules of procedure. Amendments are made to the Articles of Association in accordance with the Stock Corporation Act (AktG). There are no significant supplementary or deviating provisions in the Articles of Association or rules of procedure. 5.4 AUTHORITY OF THE MANAGEMENT BOARD TO ISSUE NEW SHARES

By resolution of the extraordinary general meeting on 22 November 2017 and with the approval of the Super-visory Board, the Management Board was authorised to increase the share capital of the company by up to EUR 20,405,764.00 in exchange for cash contributions (Authorised Capital 2017/II) by issuing up to 20,405,764 new shares by 21 November 2022. Having made partial use of this authority in 2019, the Management Board is still authorised to increase the share capital by EUR 11,905,764.00 and issue another 11,905,764 new shares.

The shareholders must always be granted subscription rights, although the subscription rights of the share-holders can be excluded under the conditions of the Authorised Capital 2017/II.

DISCLOSURES RELEVANT TO ACQUISITIONS

https://ir.tlg.eu/websites/tlg/English/3330/voting-rights-announcement-2020.html

https://ir.tlg.eu/websites/tlg/English/3330/voting-rights-announcement-2020.html

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Furthermore, the share capital has been conditionally increased by up to EUR 20,405,764.00 by the issuance of 20,405,764 new shares (Contingent Capital 2017/II). The contingent capital increase will enable the company to issue new shares to the creditors of any convertible bonds or similar instruments that might be issued by 21 November 2022.

Furthermore, the share capital has been increased by up to EUR 3,455,360.00 by the issuance of up to 3,455,360 new shares (Contingent Capital 2017/III). The contingent capital increase will enable the company to provide the departing shareholders of WCM Beteiligungs- und Grundbesitz- Aktiengesellschaft with exit compensation consisting of shares in the company in accordance with the provisions of the control agreement concluded with WCM AG.

By resolution of the general meeting on 21 May 2019 and with the approval of the Supervisory Board, the Management Board is authorised to increase the share capital of the company by up to EUR 10,000,000.00 by 20 May 2024 by issuing up to 10,000,000 new shares in exchange for contributions in kind in order to pay out dividends in shares whereby shares of the company are issued (including partially and/or optionally) from the authorised capital (Authorised Capital 2019) in exchange for the surrender of the shareholders’ dividend entitlements.

5.5 AUTHORITY OF THE MANAGEMENT BOARD TO ACQUIRE AND UTILISE TREASURY SHARES

On 21 May 2019 and with the approval of the Supervisory Board, the general meeting of TLG IMMOBILIEN AG authorised the Management Board to acquire treasury shares to a value of up to 10% of the share capital of the company as at the date of the resolution or – if this value is lower – when the authority is exercised, by 20 May 2024 and with consideration for the principle of equal treatment (Sec. 53a AktG).

At the discretion of the Management Board and subject to other prerequisites, the purchase can be (i) on the stock exchange, (ii) in the form of a public purchase offer submitted to all of the company’s shareholders or a public invitation to the shareholders to submit offers for sale, or (iii) in the form of a public offer or a public invitation to submit an offer to swap liquid shares which have been admitted to trading on an organised market in the sense of the German Securities Acquisition and Takeover Act (WpÜG) in exchange for shares of the company.

Furthermore, the Management Board was authorised to utilise the shares acquired in this manner, subject to other conditions, especially (i) to withdraw shares, (ii) to offer to third parties in exchange for contributions in kind with the approval of the Supervisory Board, (iii) to sell to third parties in exchange for cash with the approval of the Supervisory Board (in which regard the selling price may not be significantly lower than the stock exchange price at the time of sale; Sec. 186 (3) sentence 4 AktG), and (iv) to service rights or duties to purchase shares arising from and in connection with convertible or warrant bonds issued by the company. 5.6 CHANGE-OF-CONTROL CLAUSES AND COMPENSATION AGREEMENTS IN THE EVENT OF A TENDER OFFER

The main agreements of TLG IMMOBILIEN AG which are contingent on a change of control concern financing agreements. The main financing agreements of TLG IMMOBILIEN contain standard provisions in the event of a change of control. In particular, these agreements contain the obligation of TLG IMMOBILIEN AG to report the change of control to the bank and the right of the creditor to terminate the loan with immediate effect and render it payable in the event of a change of control.

For the effects of the change of control on existing obligations towards creditors and bondholders in connec-tion with the takeover offer of Aroundtown SA, Luxembourg, see the disclosures under “Subsequent events” in chapter H.14.

The contracts of the members of the Management Board do not contain provisions in the event of a change of control.

DISCLOSURES RELEVANT TO ACQUISITIONS

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6. RESPONSIBILITY STATEMENT REQUIRED BY SEC. 264 (2) SENTENCE 3 HGB, SEC. 289 (1) SENTENCE 5 HGB AND SEC. 315 (1) SENTENCE 5 HGB

To the best of our knowledge and in accordance with the applicable reporting principles for financial report-ing, the annual and consolidated financial statements give a true and fair view of the net assets, cash flows and financial performance of the company and of the Group, and the report on the position of the company and the Group includes a fair review of the development and performance of the business and the position of the company and of the Group, together with a description of the principal opportunities and risks associated with the expected development of the company and of the Group.

Berlin, 27 March 2020

Barak Bar-Hen Gerald Klinck Jürgen OverathChief Executive Officer (CEO) Chief Financial Officer (CFO) Chief Operating Officer (COO)

7. ADDITIONAL INFORMATION IN ACCORDANCE WITH HGB

The business model and strategy of TLG IMMOBILIEN AG are consistent with the methods and targets of the TLG Immobilien Group as described in “1. Company Fundamentals”. 7.1 SEPARATE FINANCIAL STATEMENTS – FINANCIAL PERFORMANCE

The financial performance of the GAAP financial statements of TLG IMMOBILIEN AG are as follows:

01/2019–12/2019 01/2018–12/2018 Change

EUR m % EUR m % EUR m %

Revenue 252.3 97 210.7 100 41.6 20

Change in portfolio 7.1 3 0.0 0 7.1 0

Other capitalised internally produced services 0.5 0 0.0 0 0.5 0

Total 259.9 100 210.7 100 49.2 23

Operating expenses 194.0 75 161.3 77 32.7 20

Operating profit 65.9 25 49.4 23 16.5 33

Income from investments 16.2 8.1 8.1 98

Financial result –42.3 –20.1 –22.2 110

Other operative effects 3.7 1.4 2.3 163

Operative result 43.5 38.8 4.7 12

Non-operative result –2.8 –50.5 47.7 –94

Earnings before taxes 40.7 –11.7 52.4 0

Income taxes 12.9 8.0 4.9 61

Annual profit 27.8 –19.7 47.5 0

The company closed the 2019 financial year successfully with an annual profit of EUR 27.8 m and an operating income of EUR 43.5 m.

RESPONSIBILITY STATEMENTADDITIONAL INFORMATION IN ACCORDANCE WITH HGB

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The positive change in the annual profit compared to the previous year was essentially due to the revenue from disposals of EUR 68.0 m which was EUR 43.0 m higher than in the previous year. Netted against disposals at book value, this resulted in higher disposal profits of EUR 22.0 m.

The improvement of non-operating income was due to the recognition of write-downs of financial assets totalling EUR 59.7 m in 2018 which were not offset by any value in the current financial year.

In contrast, the income was lowered by the EUR 22.2 m decrease in the financial result. The main causes were the EUR 10.7 m increase in interest expenses for the bonds issued in May and September 2019, each with a nominal value of EUR 600 m, as well as EUR 4.0 m for the premature repayment of loans in connection with the optimisation of the company‘s financing structure. Additionally, interest expenses to affiliated companies have increased by EUR 6.5 m.

With earnings before tax of EUR 40.7 m which were EUR 52.4 m higher than in the previous year, the forecast in the 2018 annual report has been met.

The decline in revenue from letting activities was due to a larger volume of disposals in 2019.

Compared to the previous year, operating expenses have increased by EUR 32.7 m, largely due to significantly higher write-downs in connection with disposals of properties, and higher purchased services for repairs and maintenance. It was also affected by higher personnel expenses due to the higher number of employees, higher depreciation and amortisation and higher other operating expenses, due largely to the planned merger with Aroundtown. The expenses relating to letting activities are consistent with the change in revenue from operational management.

Operating profits have increased by EUR 16.5 m compared to the previous year, due primarily to more frequent disposals of properties.

The net income from investments has increased to EUR 16.2 m, due primarily to higher income from invest-ments (EUR 5.4 m) and higher income from profit transfers (EUR 3.5 m).

The income taxes (EUR 12.9 m) comprise ongoing income taxes (EUR 6.8 m), deferred taxes (EUR 6.1 m) and tax refunds (EUR –0.04 m). 7.2 SEPARATE FINANCIAL STATEMENTS – CASH FLOWS

The following condensed cash flow statement from the GAAP financial statements of TLG IMMOBILIEN AG shows the changes in cash and cash equivalents (cash in hand and bank balances) and the underlying move-ments of cash:

in EUR m 01/2019 –

12/201901/2018 –

12/2018 Change

Cash flow from operating activities 96.1 100.2 –4.1

Cash flow from investing activities –1,641.2 –123.4 –1,517.8

Cash flow from financing activities 1,870.9 –41.4 1,912.3

Change in cash and cash equivalents 325.8 –64.6 390.4

Cash and cash equivalents at the beginning of the financial year 121.1 185.7 –64.6

Cash and cash equivalents at the end of the financial year 446.9 121.1 325.8

ADDITIONAL INFORMATION IN ACCORDANCE WITH HGB

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The cash flow from operating activities was EUR 96.1 m in 2019 and therefore EUR 4.1 m lower than in the previous year. This was due primarily to the increase in cash paid for costs in connection with the planned merger with Aroundtown.

Essentially, the EUR 1,517.8 m increase in the negative cash flow from investing activities to EUR 1,641.2 m re-flects the additions to investment assets from the acquisition of shares of Aroundtown totalling EUR 1,530.2 m and the acquisition of a property through a subsidiary for EUR 88.7 m. The investment payments for portfolio properties amounted to EUR 25.9 m.

The proceeds from the disposal of properties increased by EUR 43.0 m to EUR 68.0 m due to the higher volume of disposals.

The positive cash flow from financing activities of EUR 1,870.0 m is due to the issuance of the three bonds in May and September 2019, each with a nominal value of EUR 600 m – the hybrid bond was issued by a sub-sidiary and transferred to TLG IMMOBILIEN AG – as well as the capital increase in June 2019 which generated gross proceeds of EUR 222.1 m. The payment of a dividend of EUR 94.1 m to the shareholders had the opposite effect.

Overall, due to the aforementioned items, the cash and cash equivalents increased by EUR 325.8 m to EUR 446.9 m. The cash and cash equivalents consist entirely of liquid funds.

The company was able to meet all of its financial obligations at all times in the 2019 financial year. 7.3 SEPARATE FINANCIAL STATEMENTS – NET ASSETS

The net assets of the GAAP financial statements of TLG IMMOBILIEN AG are as follows, with receivables and liabilities due in more than one year being treated as non-current:

31/12/2019 31/12/2018 Change

EUR m % EUR m % EUR m %

Fixed assets 4,135.0 88.5 2,508.5 93.6 1,626.5 64.8

Non-current receivables 0.1 0.0 0.1 0.0 0.0 0.0

Inventories 35.0 0.7 27.9 1.0 7.1 25.4

Current receivables 25.3 0.5 15.3 0.6 10.0 65.4

Cash and cash equivalents 446.7 9.6 121.1 4.5 325.6 268.9

Other assets 30.1 0.6 6.1 0.2 24.0 393.4

Total assets 4,672.0 100.0 2,679.0 100.0 1,993.0 74.4

Equity1 1,432.9 30.7 1,273.7 47.5 159.2 12.5

Non-current liabilities 3,019.1 64.6 1,247.0 46.6 1,772.1 142.1

Current liabilities 220.0 4.7 158.3 5.9 61.7 39.0

Total equity and liabilities 4,672.0 100.0 2,679.0 100.0 1,993.0 74.4

1 Including the special item for investment subsidies and grants totalling EUR 9.2 m (previous year EUR 10.7 m)

The assets side is dominated by fixed assets. The carrying amount of the fixed assets increased by EUR 1,626.5 m to EUR 4,135.0 m.

In the 2019 financial year, there were additions to investment assets totalling EUR 1,530.2 m from the acqui-sition of the shares of Aroundtown SA, Luxembourg and the investments in subsidiaries totalling EUR 98.8 m, primarily for the purpose of acquiring properties. This was counterbalanced by write-downs of EUR 36.7 m and depreciation and amortisation (EUR 58.3 m).


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The current receivables increased by EUR 10.0 m, due primarily to receivables from affiliated companies under profit transfer agreements.

Compared to the previous year, cash has increased by EUR 325.8 m. The reason for the change is described in the notes to the cash flows in accordance with HGB.

With consideration for the special item for investment subsidies and grants, TLG IMMOBILIEN AG is financed by equity at 30.7% (previous year 47.5%) and by non-current liabilities at 64.6% (previous year 46.5%), with the remainder attributable to current liabilities.

The EUR 1,772.1 m increase in non-current liabilities was due primarily to the issuance of the three bonds in May and September 2019, each with a nominal value of EUR 600 m, including the issuance of a hybrid bond through a subsidiary.

The current liabilities are higher than in the previous year, due largely to reclassifications within liabilities due to financial institutions and liabilities to affiliated companies for reasons relating to their terms. 7.4 SEPARATE FINANCIAL STATEMENTS – RISKS AND OPPORTUNITIES

TLG IMMOBILIEN AG has a dominant weight within the Group. It therefore faces the same opportunities and risks as the Group. The risks faced by the subsidiaries affect TLG IMMOBILIEN AG in line with each sharehold-ing. The individual risks of the Group are disclosed in the risk report (see section 3.1.2).

7.5 SEPARATE FINANCIAL STATEMENTS – FORECAST REPORT

The disclosures concerning the general economic conditions in section 3.2.1 and the evaluation of the expected development of the TLG IMMOBILIEN Group’s business in section 3.2.2, especially in terms of the potential impact of the coronavirus pandemic on its business operations, also apply to the forecast business development of TLG IMMOBILIEN AG.

Not taking the currently unforeseeable effects of the coronavirus crisis into consideration, the development of business is still expected to be positive.

On this basis, the operative result for 2020 is expected to be on a similar level to 2019 and earnings before taxes are expected to be significantly higher due to the dividend resulting from the shares in Aroundtown.


Barak Bar-Hen Gerald Klinck Jürgen OverathChief Executive Officer (CEO) Chief Financial Officer (CFO) Chief Operating Officer (COO)


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CONSOLIDATED FINANCIAL STATEMENTS

62 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

63 CONSOLIDATED STATEMENT OF FINANCIAL POSITION

64 CONSOLIDATED CASH FLOW STATEMENT

65 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


66 A. GENERAL INFORMATION ON THE CONSOLIDATED FINANCIAL STATEMENTS OF TLG IMMOBILIEN AG66 A.1 INFORMATION ON THE COMPANY

66 A.2 PRINCIPLES OF THE CONSOLIDATED FINANCIAL STATEMENTS

66 B. ACCOUNTING STANDARDS66 B.1 NEW AND AMENDED STANDARDS APPLIED BY THE GROUP

68 B.2 NEW ACCOUNTING STANDARDS

68 C. PRINCIPLES OF CONSOLIDATION68 C.1 METHODS OF CONSOLIDATION

69 C.2 SCOPE OF CONSOLIDATION

70 C.3 NON-CONTROLLING INTERESTS

70 D. EXPLANATION OF ACCOUNTING AND MEASUREMENT METHODS70 D.1 INVESTMENT PROPERTY

71 D.2 PROPERTY, PLANT AND EQUIPMENT

72 D.3 INTANGIBLE ASSETS

72 D.4 IMPAIRMENTS OF NON-FINANCIAL ASSETS

72 D.5 OTHER FINANCIAL ASSETS

72 D.6 RECOGNITION OF LEASES BY THE LESSEE

73 D.7 RECOGNITION OF LEASES BY THE LESSOR

73 D.8 INVENTORIES

73 D.9 RECEIVABLES AND OTHER ASSETS

73 D.10 CASH AND CASH EQUIVALENTS

73 D.11 ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE

74 D.12 LIABILITIES DUE TO FINANCIAL INSTITUTIONS AND CORPORATE BONDS

74 D.13 PENSION PROVISIONS

74 D.14 SHARE-BASED PAYMENTS

75 D.15 OTHER PROVISIONS

75 D.16 DERIVATIVE FINANCIAL INSTRUMENTS

75 D.17 FAIR VALUES OF FINANCIAL INSTRUMENTS

75 D.18 DETERMINATION OF FAIR VALUE

76 D.19 RECOGNITION OF INCOME AND EXPENSES

76 D.20 GOVERNMENT GRANTS

76 D.21 CURRENT AND DEFERRED TAXES

77 D.22 BORROWING COSTS

77 D.23 MAJOR DISCRETIONARY DECISIONS AND ESTIMATES

78 D.24 DISCLOSURE OF BUSINESS SEGMENTS

78 D.25 RECOGNITION OF NON-CONTROLLING INTERESTS

60 CONSOLIDATED FINANCIAL STATEMENTSCONTENT

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79 E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION79 E.1 INVESTMENT PROPERTY

83 E.2 PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

83 E.3 SHARES IN COMPANIES MEASURED AT EQUITY

85 E.4 OTHER FINANCIAL ASSETS

85 E.5 TRADE RECEIVABLES

85 E.6 OTHER RECEIVABLES AND ASSETS

85 E.7 INVENTORIES

86 E.8 CASH AND CASH EQUIVALENTS

86 E.9 ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE

86 E.10 EQUITY

87 E.11 LIABILITIES DUE TO FINANCIAL INSTITUTIONS

87 E.12 CORPORATE BONDS

87 E.13 PENSION PROVISIONS

88 E.14 OTHER PROVISIONS

89 E.15 DEFERRED TAXES

89 E.16 TAX LIABILITIES

90 E.17 LIABILITIES

90 F. NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME90 F.1 NET OPERATING INCOME FROM LETTING ACTIVITIES

90 F.2 RESULT FROM THE DISPOSAL OF PROPERTIES

90 F.3 RESULT FROM THE REMEASUREMENT OF INVESTMENT PROPERTY

91 F.4 OTHER OPERATING INCOME

91 F.5 PERSONNEL EXPENSES

91 F.6 DEPRECIATION AND AMORTISATION

91 F.7 OTHER OPERATING EXPENSES

91 F.8 FINANCIAL RESULT

92 F.9 RESULT FROM THE REMEASUREMENT OF DERIVATIVE FINANCIAL INSTRUMENTS

92 F.10 INCOME TAXES

93 F.11 EARNINGS PER SHARE

94 G. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

95 H. OTHER INFORMATION95 H.1 DISCLOSURES RELATING TO FINANCIAL INSTRUMENTS

96 H.2 PRINCIPLES OF FINANCIAL RISK MANAGEMENT

97 H.3 DEFAULT RISKS

99 H.4 OFFSETTING OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

99 H.5 LIQUIDITY RISKS

100 H.6 MARKET RISKS

101 H.7 SENSITIVITIES

101 H.8 NUMBER OF EMPLOYEES

101 H.9 TOTAL AUDITOR’S FEE

101 H.10 IFRS 2 PROGRAMMES

102 H.11 RELATED PARTIES

105 H.12 OTHER FINANCIAL OBLIGATIONS

106 H.13 SHAREHOLDING LIST

107 H.14 SUBSEQUENT EVENTS

109 H.15 DECLARATION OF COMPLIANCE IN ACCORDANCE WITH SEC. 161 AKTG

110 INDEPENDENT AUDITOR‘S REPORT

CONSOLIDATED FINANCIAL STATEMENTS 61CONTENT

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfor the period from 1 January to 31 December 2019

in EUR k Reference01/01/2019 –

31/12/201901/01/2018 –

31/12/2018

Rental income 229,767 223,886

Income from recharged operating costs 47,850 45,524

Income from other goods and services 5,108 2,033

Income from letting activities 282,725 271,443

Expenses from operating costs –59,452 –60,595

Maintenance expenses –10,454 –11,283

Other services –3,488 –2,839

Expenses relating to letting activities –73,394 –74,717

Net operating income from letting activities F.1 209,331 196,726

Proceeds from the disposal of properties 186,035 25,025

Carrying amount of properties disposed of –186,013 –25,025

Change in value of properties held for sale 21,548 7,921

Expenses from the disposal of properties –1,037 –88

Result from the disposal of properties F.2 20,533 7,833

Result from the remeasurement of investment property E.1 638,366 552,884

Other operating income F.4 1,756 1,996

Personnel expenses F.5 –18,720 –16,505

Depreciation and amortisation F.6 –1,728 –165,755

Other operating expenses F.7 –22,997 –16,128

Earnings before interest and taxes (EBIT) 826,541 561,051

Net income from companies measured at equity E.3 49,817 0

Financial income F.8 388 628

Financial expenses F.8 –44,257 –32,109

Result from the remeasurement of derivative financial instruments F.9 –18,940 –7,904

Earnings before taxes 813,549 521,666

Income taxes F.10 –235,230 –210,720

Net income 578,319 310,946

Other comprehensive income (OCI): E.10

thereof will not be reclassified to profit or loss

Actuarial gains and losses after taxes –816 –251

Thereof will be classified to profit or loss

Gain/loss from remeasurement of derivative financial instruments in hedging relationships, net of taxes 1,093 740

Share of other comprehensive income from companies measured at equity E.3 616 0

Total comprehensive income for the year 579,212 311,435

Of the net income, the following is attributable to:

Non-controlling interests 1,542 3,019

Hybrid capital providers E.10 5,049 0

The shareholders of the parent company 571,728 307,928

Earnings per share (basic) in EUR F.11 5.30 2.99

Earnings per share (diluted) in EUR F.11 5.30 2.99

Of the total comprehensive income for the year, the following is attributable to:


Hybrid capital providers 5,049 0

The shareholders of the parent company 572,621 308,416

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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CONSOLIDATED FINANCIAL STATEMENTS 63

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONas at 31 December 2019

Assets

in EUR k Reference 31/12/2019 31/12/2018

A) Non-current assets 6,343,234 4,112,755

Investment property E.1 4,707,397 4,067,527

Advance payments on investment property 2,218 23

Property, plant and equipment E.2 8,794 8,933

Intangible assets E.2 2,980 2,590

Shares in companies measured at equity E.3 1,580,641 0

Other non-current financial assets E.4 18,098 13,517

Right-of-use assets E.2 2,020 n/a

Other assets E.6 21,086 20,165

B) Current assets 559,075 208,092

Inventories E.7 734 737

Trade receivables E.5 10,979 14,864

Receivables from income taxes 477 1,827

Other current financial assets E.4 16,959 1,129

Other receivables and assets E.6 2,958 2,562

Cash and cash equivalents E.8 523,950 153,893

Assets classified as held for sale E.9 3,018 33,080

Total assets 6,902,309 4,320,847

Equity and liabilities

in EUR k Reference 31/12/2019 31/12/2018

A) Equity E.10 3,446,647 2,157,239

Subscribed capital 112,074 103,385

Capital reserves 1,148,041 1,011,381

Retained earnings 1,577,372 1,023,751

Other reserves –3,700 –4,593

Equity attributable to shareholders of the parent company 2,833,787 2,133,924

Equity of the hybrid capital providers 590,844 0

Equity attributable to shareholders of the parent company and equity of the hybrid capital providers 3,424,631 2,133,924


B) Liabilities 3,455,662 2,163,608

I.) Non-current liabilities 3,303,463 1,970,110

Non-current liabilities due to financial institutions E.11 960,812 1,046,342

Corporate bonds E.12 1,578,201 395,975

Pension provisions E.13 8,994 8,019

Other non-current provisions2 E.14 3,315 523

Non-current derivative financial instruments H.1 27,307 10,254

Other non-current liabilities E.17 27,625 28,508

Deferred tax liabilities E.15 697,209 480,489

II.) Current liabilities 152,199 193,498

Current liabilities due to financial institutions E.11 76,075 136,613

Corporate bonds1 E.12 6,486 512

Trade payables E.17 38,560 35,389

Other current provisions E.14 4,050 3,928

Tax liabilities E.16 9,514 2,743

Other current liabilities E.17 17,514 14,313

Total equity and liabilities 6,902,309 4,320,8471 Disclosure adjusted: The accrued interest for corporate bonds was recognised under non-current liabilities in the previous year. It is now recognised as a separate line item under current liabilities.2 Disclosure adjusted: The provisions from share-based payments were recognised under other current provisions in the previous year and are now recognised under non-current provisions.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

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CONSOLIDATED CASH FLOW STATEMENTfor the period from 1 January to 31 December 2019

in EUR k Reference01/01/2019 –

31/12/201901/01/2018 –

31/12/2018

1. Cash flow from operating activities

Net income before taxes 813,549 521,666

Depreciation of property, plant and equipment and amortisation of intangible assets D.4, E.2 1,728 165,755

Result from the remeasurement of investment property E.1, F.3 –638,366 –552,884

Result from the remeasurement of derivative financial instruments F.9 18,940 7,904

Increase/decrease (–) in provisions E.14 3,889 563

Change in value of properties held for sale –21,548 –7,921

Other non-cash income/expenses 825 –3,549

Net income from companies measured at equity E.3 –49,817 0

Gain (–)/loss from disposal of property, plant and equipment and intangible assets –250 370

Increase (–)/decrease in inventories E.7 3 25

Financial income F.8 –388 –628

Financial expenses F.8 44,257 32,109

Increase (–)/decrease in trade receivables and other assets E.5/6 194 –5,394

Increase (–)/decrease in trade payables and other liabilities E.17 3,791 3,859

Cash flow from operating activities 176,808 161,875

Interest received 388 628

Interest paid –40,703 –30,667

Income tax paid/received –4,571 –1,824

Net cash flow from operating activities 131,922 130,012

2. Cash flow from investing activities

Cash received from disposals of investment property E.1, G. 67,973 25,025

Cash received from disposals of property, plant and equipment 232 193

Cash paid for acquisitions of investment property E.1 –139,966 –153,272

Cash paid for acquisitions of property, plant and equipment –217 –280

Cash paid to deposit finance with restricted access –16,072 0

Cash paid for investments in intangible assets –1,309 –1,417

Cash paid for investments in financial assets E.3 –1,531,145 0

Cash received from the disposal of consolidated companies and other business units C.2 66,490 0

Cash flow from investing activities –1,554,015 –129,751

3. Cash flow from financing activities

Cash received from the issuance of corporate bonds E.12 1,182,755 0

Cash received from equity contributions E.10 220,046 0

Cash received from hybrid capital providers E.10 590,260 0

Dividend payment E.10 –94,140 –84,645

Cash paid to non-controlling interests –1,223 0

Cash paid to hybrid capital providers –5,049 0

Cash received from bank loans E.11 142,796 56,202

Repayments of bank loans E.11 –237,240 –19,400

Cash paid to settle liabilities for leases –414 0

Transaction costs in connection with the issuance of hybrid capital –5,641 0

Cash flow from financing activities 1,792,150 –47,843

4. Cash and cash equivalents at end of period

Net change in cash and cash equivalents (subtotal of 1–3) 370,057 –47,582

Cash and cash equivalents at beginning of period 153,893 201,476

Cash and cash equivalents at end of period 523,950 153,894

5. Composition of cash and cash equivalents

Cash 523,950 153,893

Cash and cash equivalents at end of period 523,950 153,893

CONSOLIDATED CASH FLOW STATEMENT

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CONSOLIDATED FINANCIAL STATEMENTS 65

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the period from 1 January to 31 December 2019

in EUR kSubscribed

capitalCapital

reservesRetained earnings

Other comprehensive income (OCI)

Hybrid capital

providers

Non-controlling

interests Equity

Reserve hedge

accountingActuarial

gains/losses

Share of other comprehen-sive income

from compa-nies measured

at equity

01/01/2018 102,029 1,061,087 739,603 –3,135 –1,948 0 0 38,924 1,936,560

Net income 0 0 307,928 0 0 0 0 3,019 310,946

Other comprehensive income (OCI) 0 0 0 740 –251 0 0 0 489

Total comprehensive income for the year 0 0 307,928 740 –251 0 0 3,019 311,435

Dividend payment 0 0 –84,645 0 0 0 0 0 –84,645

Guaranteed dividend 0 0 0 0 0 0 0 –2,627 –2,627

Share capital increase in ex-change for contributions in kind 1,356 30,384 –15,855 0 0 0 0 –15,885 0

Capital contributions/redemptions in connection with share-based payments 0 –2,784 0 0 0 0 0 0 –2,784

Withdrawal from capital reserves 0 –77,306 0 0 0 0 0 0 –77,306

Allocation to retained earnings 0 0 77,306 0 0 0 0 0 77,306

Other 0 0 –585 0 0 0 0 –116 –701

Change during the period 1,356 –49,706 284,149 740 –251 0 0 –15,609 220,679

31/12/2018 103,385 1,011,381 1,023,752 –2,394 –2,199 0 0 23,315 2,157,240

01/01/2019 103,385 1,011,381 1,023,751 –2,394 –2,199 0 0 23,315 2,157,239

Net income 0 0 571,728 0 0 0 5,049 1,542 578,319

Other comprehensive income (OCI) 0 0 0 1,093 –816 616 0 0 893

Total comprehensive income for the year 0 0 571,728 1,093 –816 616 5,049 1,542 579,212

Adjustment of non-controlling interests 0 0 –711 0 0 0 0 –226 –937

Share capital increase in exchange for contributions in kind 189 4,757 –3,617 0 0 0 0 –1,329 0

Dividend payment 0 0 –94,140 0 0 0 0 0 –94,140

Guaranteed dividend 0 0 0 0 0 0 0 –1,218 –1,218

Share capital increase in exchange for cash contributions 8,500 213,592 0 0 0 0 0 0 222,092

Transaction costs associated with the share capital increase, after taxes 0 –1,513 0 0 0 0 0 0 –1,513

Issuance of hybrid capital 0 0 0 0 0 0 600,000 0 600,000

Transaction costs associated with the hybrid capital, after taxes 0 0 0 0 0 0 –9,156 0 –9,156

Distribution to hybrid capital providers 0 0 1,259 0 0 0 –5,049 0 –3,790

Withdrawal from capital reserves 0 –79,703 79,703 0 0 0 0 0 0

Capital contributions/redemptions in connection with share-based payments 0 –533 0 0 0 0 0 0 –533

Other 0 60 –602 0 0 0 0 –67 –609

Change during the period 8,689 136,660 553,621 1,093 –816 616 590,844 –1,299 1,289,408

31/12/2019 112,074 1,148,041 1,577,372 –1,301 –3,015 616 590,844 22,016 3,446,647

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

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A. GENERAL INFORMATION ON THE CONSOLIDATED FINANCIAL STATEMENTS OF TLG IMMOBILIEN AG

A.1 INFORMATION ON THE COMPANY

TLG IMMOBILIEN AG, Berlin, is an Aktiengesellschaft (stock cor-

poration) in Germany with its headquarters at Hausvogteiplatz

12, 10117 Berlin, Germany, entered in the commercial register

of Berlin under the number HRB 161314 B, and is – together

with its subsidiaries, the TLG IMMOBILIEN Group (short: TLG

IMMOBILIEN) – one of the largest providers of commercial real

estate in Germany.

The main activities consist of the operation of real estate busi-

nesses and transactions of all types in connection with this, as

well as the letting, management, acquisition, disposal and de-

velopment of office, retail and hotel properties, either itself or

via companies of which the company is a shareholder.

A.2 PRINCIPLES OF THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements were prepared in accor-

dance with Sec. 315e HGB with consideration for the supple-

mentary commercial regulations and in conjunction with the

International Financial Reporting Standards (IFRS) adopted and

published by the International Accounting Standards Board

(IASB), as adopted by the European Union.

The consolidated financial statements comprise the consol-

idated statement of comprehensive income, the consolidated

statement of financial position, the consolidated cash flow state-

ment, the consolidated statement of changes in equity and the

notes to the consolidated financial statements. The individual

items are explained in the notes.

The currency of the consolidated financial statements is the

euro.

Unless stated otherwise, all amounts are given in thousands of

euros (EUR k). In tables and references – for reasons of calcula-

tion – there can be rounding differences to the mathematically

exactly determined figures.

The financial statements of TLG IMMOBILIEN AG and its fully

consolidated subsidiaries form the basis of the consolidated

financial statements prepared for the 2019 financial year. The

financial statements of the subsidiaries are prepared using

uniform accounting and measurement methods as at the same

reporting date as the financial statements of the parent company.

The consolidated financial statements were prepared by the

Management Board by 27 March 2020. The Supervisory Board is

expected to approve the consolidated financial statements in its

meeting on 27 March 2020.

The compilation of the consolidated financial statements is gen-

erally carried out on the basis of assets and debts entered in the

statement of financial position at amortised or historical cost.

In particular, this does not apply to investment properties or

derivative financial instruments that are measured at fair value

on the reporting date.

The consolidated financial statements as well as the report on

the position of the company and the Group will be published in

the electronic version of the German Federal Gazette (Bundes-

anzeiger).

B. ACCOUNTING STANDARDS

B.1 NEW AND AMENDED STANDARDS APPLIED BY THE GROUP

IFRS 16 – Leases

The International Accounting Standards Board published the final

version of IFRS 16 (Leases) in January 2016.

IFRS replaces the previous classification of leases by lessors

as operating or finance. Instead, IFRS 16 introduces a single

lessee accounting model whereby a lessee is generally obliged

to recognise a liability and a corresponding right of use to

the leased property. This means that leases which were not

previously recognised must now be recognised in a statement of

financial position – largely similar to the recognition of financial

leases so far.

However, the approach of IAS 17 (Leases) which differentiates

between operating and finance leases continues to apply to les-

sors. The list of criteria for assessing a finance lease has been

adopted as-is from IAS 17.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

GENERAL INFORMATION ON THE CONSOLIDATED FINANCIAL STATEMENTS OF TLG IMMOBILIEN AGACCOUNTING STANDARDS

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 67

The Group started applying IFRS 16 (Leases) on 1 January 2019,

the initial application date of the new standard, in accordance

with the modified retrospective method. The comparative

figures from the previous year have not been adjusted. As a

lessee, the Group utilises the recognition exemptions provided

by IFRS 16.5 and, as such, does not apply IFRS 16.22 to IFRS

16.49 to leases with a contractual term of twelve months or less

or to leases (on a case-by-case basis) in which the underlying

asset is of low value.

As part of the transition to IFRS 16, right-of-use assets of EUR k

3,752 were recognised on 1 January 2019 alongside liabilities for

leases in the same amount. Based on the operating leases as

at 31 December 2018, the reconciliation with the opening value

of the liabilities for leases as at 1 January 2019 was as follows:

Reconciliation of liabilities for leasesin EUR k 2019

Obligations from operating leases as at 31/12/20181 5,183

Short-term leases 95

Discounting of the total interest rate for liabilities as at the date when IFRS 16 was first applied 1,336

Newly recognised liabilities for leases as at 01/01/2019 according to IFRS 16 3,752

1 Corrected value

The weighted average total interest rate for liabilities which was

used to determine the liabilities for leases as at 1 January 2019

was 2.90%.

Right-of-use assets are recognised separately from other assets

in the line item “Right-of-use assets”. Liabilities for leases are

recognised in the line item “Other non-current liabilities”. In-

formation on the right-of-use assets and liabilities for leases is

available along with other disclosures below the corresponding

line items in sections E.2 Property, plant and equipment and

intangible assets, E.17 Liabilities and H.5 Liquidity risks.

In the 2019 financial year, the right-of-use assets and liabilities

for leases recognised according to IFRS 16 had the following ef-

fects on the consolidated statement of comprehensive income:

Amounts recognised in the consolidated statement of comprehensive incomein EUR k

01/01/2019–31/12/2019

Depreciation of right-of-use assets 454

Interest expenses for liabilities for leases 99

Expenses for short-term leases 102

Expenses for leases of low-value underlying assets 4

The change in the disclosure of expenses for leases has also

resulted in a shift of EUR k 414 from the cash flow from financing

activities in favour of the cash flow from operating activities.

The accounting and measurement methods modified by IFRS 16

are presented in the sections D.6 Recognition of leases by the

lessee and D.7 Recognition of leases by the lessor.

IFRIC interpretation 23 – Uncertainty over Income

Tax Treatments

The interpretation applies to the recognition of income taxes

according to IAS 12 where there is uncertainty over the

acceptable income tax treatment. It does not apply to taxes

or contributions which do not fall under the scope of IAS 12

and does not address interest and penalties in connection with

uncertain tax treatments. The interpretation addresses the

following aspects in particular:

Determination whether each tax treatment should be

considered independently by an entity

The assumption an entity makes with regard to the

examination of tax treatments by taxation authorities

Determination of taxable profit (tax loss), tax bases,

unused tax losses, unused tax credits and tax rates

Effect of changes in facts and circumstances

The Group must determine whether each uncertain tax treat-

ment should be considered independently or whether some tax

treatments should be considered together. The decision should

be based on which approach provides better predictions of the

resolution of the uncertainty.

The Group makes discretionary decisions when identifying

uncertainties with regard to income tax treatment and has

examined whether the interpretation had an effect on its

consolidated financial statements.

When applying the interpretation for the first time, the Group

considered whether uncertain tax items existed, e.g. in connec-

tion with transfer prices.

On the basis of its tax compliance analysis, the Group came to

the conclusion that the tax treatments it and its subsidiaries

apply are likely to be accepted by the taxation authorities.

The interpretation had no effect on the consolidated financial

statements.

ACCOUNTING STANDARDS

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B.2 NEW ACCOUNTING STANDARDS

Published IFRS whose application is not yet obligatory

New and amended IFRS and interpretations whose application

is not yet mandatory and which are not applied prematurely by

the Group

EU endorsement Standards/interpretations Content

Applications for financial years

from/afterLikely effects on

the TLG Group

29/11/2019 Amendments to IAS 1 and IAS 8 Definition of material 01/01/2020 None

Not yet adopted Amendments to IFRS 3 Definition of a business 01/01/2020 None

15/01/2020 Amendments to IAS 39, IFRS 9 and IFRS 7

Interest rate benchmark reform 01/01/2020 None

n/a Conceptual framework Revised definitions as well as new guidance on measurement and derecognition, presentation and disclosure

01/01/2020 None

29/11/2019 Conceptual framework Amendments to references to the conceptual framework in IFRS standards

01/01/2020 None

Not yet adopted IFRS 17 Insurance contracts 01/01/2021 None

Not yet adopted IAS 1 Amendments to the criteria for classifying a liability as current or non-current

01/01/2022 Currently none

Not yet adopted Amendments to IFRS 10 and IAS 28

Sale or contribution of assets between an investor and its associate or joint venture

Still outstanding None

C. PRINCIPLES OF CONSOLIDATION

C.1 METHODS OF CONSOLIDATION

Subsidiaries

TLG IMMOBILIEN AG and all significant subsidiaries of which TLG

IMMOBILIEN AG could have direct or indirect control are included

in the consolidated financial statements of the TLG IMMOBILIEN

Group. Subsidiaries are fully consolidated from the time TLG

IMMOBILIEN AG gains control of them. Control is gained at the

time the following conditions have been cumulatively fulfilled:

(1) TLG IMMOBILIEN AG has power of disposition to control the

relevant activities of the subsidiary.

(2) TLG IMMOBILIEN AG is subject to variable return flows from

this subsidiary.

(3) TLG IMMOBILIEN AG has the ability to influence the variable

return flows through its power of disposition.

The financial statements of the subsidiaries are prepared in a

uniform manner using the accounting and measurement meth-

ods of TLG IMMOBILIEN AG.

ACCOUNTING STANDARDSPRINCIPLES OF CONSOLIDATION

The consolidation of capital is carried out using the acquisition

method, whereby the acquisition costs at the time of acquisi-

tion are offset against the equity capital corresponding to the

amount of the shareholding. In this process, the equity capital

of acquired subsidiaries at the time of acquisition is determined

under observance of the fair value of the identifiable assets,

debts and contingent liabilities, deferred taxes and the possible

goodwill at this point in time.

Non-controlling interests

Non-controlling interests represent the portion of the result

and the net assets which is not attributable to the shareholders

of TLG IMMOBILIEN AG. Non-controlling interests are disclosed

separately in the consolidated statement of comprehensive

income and in the consolidated statement of financial position.

Disclosure in the consolidated statement of financial position

occurs under equity, separately from equity attributable to

shareholders of the parent company.

Loss of control

If TLG IMMOBILIEN AG loses control of a subsidiary, the assets

and liabilities of that subsidiary shall be derecognised along

with the related non-controlling interests. The net income is rec-

ognised in the statement of profit or loss.

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Associated companies

Associated companies are recognised using the equity method.

An associated company is an entity over which the owner has

significant influence. A joint venture is a joint agreement in

which the parties with joint responsibility for the management

of the company have rights to the net assets of the agreement.

The Group‘s shares in an associated company or joint venture

are recognised using the equity method. According to the equity

method, the shares in an associated company or joint venture

are measured at historical cost when they are first recognised.

The carrying amount of the equity investment is adjusted in

order to account for changes to the Group‘s share of the net

assets of the associated company or joint venture since the date

of acquisition. The goodwill relating to the associated company

or joint venture is part of the carrying amount of the stake and

is neither amortised nor tested for impairment.

Transactions eliminated during consolidation

All intra-Group receivables and payables and income and ex-

penses, as well as profit and loss from intra-Group transactions,

are eliminated. The net income from transactions with compa-

nies recognised using the equity method are eliminated based

on the size of the Group‘s stake in the associate.

C.2 SCOPE OF CONSOLIDATION

Number of fully consolidated subsidiaries 2019 2018

As at 01/01 54 52

Additions 2 2

Disposals –10 0

As at 31/12 46 54

With the purchase and assignment agreement regarding GmbH

and KG shares dated 18 March 2019, all shares in the following

companies were sold as at the closing on 1 November 2019:

Greenman 1D GmbH

WCM Handelsmärkte VIII GmbH & Co. KG

Aschgo GmbH & Co. KG

Barisk GmbH & Co. KG

Berkles GmbH & Co. KG

WCM Handelsmärkte III GmbH & Co. KG

A preliminary purchase price of EUR k 72,570 was paid as

consideration for the sold shares of the subsidiaries and for

sold loans of WCM AG. Less the sold net assets of EUR k 67,139,

including the upward revaluation of the subsidiaries’ properties

totalling EUR k 8,020, the preliminary disposal profit is EUR k

5,431. In connection with the sale, other liabilities totalling

EUR k 5,439, including for obligations resulting from tax refund

claims, have been recognised against the net income from the

sale. Overall, a loss of EUR k 8 has resulted from the sale of the

shares of the above companies. This is recognised under other

operating expenses (see section F.7).

The disposals of the companies resulted in the disposal of the

following assets and liabilities from the consolidated statement

of financial position:

in EUR k 01/11/2019

Assets

Non-current assets classified as held for sale 118,054

Trade receivables 153

Other receivables and assets 5

Receivables from income taxes 28

Cash and cash equivalents 6,102

124,341

Liabilities

Non-current liabilities due to financial institutions 46,046

Other non-current liabilities 3,659

Deferred tax liabilities 2,263

Current liabilities due to financial institutions 1,343

Trade payables 3,623

Tax liabilities 36

Other current liabilities 234

57,203

Net assets disposed of 67,139

Additional operating facilities worth EUR k 235 were sold to the

buyer as part of the sale of the shares.

As at 1 September 2019, TLG IMMOBILIEN AG acquired shares

in the joint capital of Aroundtown SA (“Aroundtown”). In ac-

cordance with IAS 28, these shares have been consolidated

using the equity method as at 31 December 2019. We refer to

the disclosures in section E.3 Shares in companies measured

at equity.

PRINCIPLES OF CONSOLIDATION

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D. EXPLANATION OF ACCOUNTING AND MEASUREMENT METHODS

D.1 INVESTMENT PROPERTY

TLG IMMOBILIEN identifies investment properties as those prop-

erties which are held with the objective of rental income and/

or value increases and not for its own use or sale within the

framework of the typical business activities.

TLG IMMOBILIEN holds properties which are partially owner-oc-

cupied and partially occupied by third parties, i.e. rented. These

mixed-use properties are entered separately in the statement

of financial position as long as a legal means of dividing the

property exists and neither the owner-occupied nor the rented

portion is negligible.

A transfer of properties from the portfolio of investment proper-

ties occurs if a change in use is on hand, which is documented

by the commencement of owner occupation or the commence-

ment of development with the intention to sell.

At the time of inclusion, the investment properties are entered

in the statement of financial position with their acquisition or

production costs. The properties are subsequently entered in

the statement of financial position at their fair value according

to their voting right provided for by IAS 40 in connection with

IFRS 13. Pursuant to IFRS 13.9, the fair value is defined as the

price that would be received to sell an asset or paid to transfer a

liability in an orderly transaction between market participants at

the measurement date. This means that the fair value generally

implies the sale of an asset (the exit price). It corresponds to

the (theoretical) price paid to the seller upon the (hypothetical)

sale of a property on the measurement date, regardless of any

company-specific intention or ability to sell the asset.

The measurement of the fair value is carried out in principle on

the basis of the highest and best use of the property (“Concept

of the highest and best use”; IFRS 13.27 et seq.). This implies

the maximisation of the use and/or value of the property to

the greatest extent technically possible, allowable by law and

financially feasible.

All changes in the fair values of investment properties are rec-

ognised through profit or loss for the period.

Multiple mergers also took place in the third quarter of 2019:

WCM Technical Services GmbH and WCM Technical Services II

GmbH were merged into Main Triangel Gastronomie GmbH with

effect from 1 January 2019 and WCM Verwaltungs V GmbH and

WCM Verwaltungs VII GmbH were merged into WCM Verwal-

tungs VI GmbH.

TLG Finance S.à r.l., Luxembourg was established as a subsidiary

of TLG IMMOBILIEN AG on 16 July 2019. It was entered into the

Trade and Companies Register of Luxembourg on 6 August 2019.

TLG BES GmbH, Berlin was established as a subsidiary of TLG

IMMOBILIEN AG on 2 December 2019 in order to expand oper-

ating activities. It was entered into the commercial register on

3 December 2019.

For the shareholding list, please see section H.13.

C.3 NON-CONTROLLING INTERESTS

The following table presents information on the Group’s subsid-

iaries with significant non-controlling interests prior to internal

elimination.

WCM Beteiligungs- und Grund-besitz Aktiengesellschaft,

Frankfurt/Main

in EUR k 31/12/2019 31/12/2018

Percentage of non-controlling interests 7.47% 8.41%

Non-current assets 737,007 835,471

Current assets 94,506 32,020

Non-current liabilities –211,187 –458,451

Current liabilities –277,769 –80,845

Net assets 342,557 328,195

Net assets of non-controlling interests 25,590 27,590

Income from letting activities 55,957 57,862

Expenses relating to letting activities –20,961 –20,286

Earnings before taxes 29,016 38,224

Income taxes –9,337 –3,747

Net income 19,679 34,477

Profit allocated to non-controlling interests 1,470 2,898

Dividends paid to holders of non-controlling interests 1,223 0

Cash flow from operating activities 19,588 21,086

Cash flow from investing activities 56,659 –8,643

Cash flow from financing activities –10,749 –1,774

Net increase (net decrease) in cash and cash equivalents 65,497 10,669

In the 2019 financial year, the percentage of non-controlling

interests decreased by 0.94% as other shareholders of WCM

AG accepted the swap offer of 9 February 2018 and swapped

their shares for shares of TLG IMMOBILIEN. Additionally, 195,585

shares of WCM AG have been acquired on the free market.

PRINCIPLES OF CONSOLIDATIONEXPLANATION OF ACCOUNTING AND MEASUREMENT METHODS

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Due to the limited availability of data and valuation parameters

directly observable on the market, the complexity of property

valuation as well as the heterogeneousness of properties, the

valuation at fair value of investment properties is allocated to

Level 3 of the fair value hierarchy of IFRS 13.86 (valuation on the

basis of significant unobservable input factors).

In particular, the following significant non-observable input

factors are considered for the valuation:

Future rental agreements, based on the individual location,

type, size and quality of the property, under consideration

of the conditions of existing rental relationships, other con-

tracts or external indicators such as normal market rents for

comparable properties

Estimates on vacancy rates, based on current and expected

future market conditions after the expiry of existing rental

relationships

Discounted interest rates for the planning period of ten years

reflect the current market estimations regarding uncertainty

of the amount and the timing of the inflow of future cash

flows

Capitalisation rates, based on the individual location, type,

size and quality of the property, with consideration for mar-

ket information available on the date in question

Residual values, in particular based on assumptions on fu-

ture maintenance and reinvestment costs, vacancy rates

and normal market rents and growth rates

Costs of construction work such as renovations for tenants

in connection with future new rental agreements, measures

designed to preserve the quality of the property, renova-

tions, modernisations and development projects based on

current and expected future market conditions

D.2 PROPERTY, PLANT AND EQUIPMENT

Assets included in property, plant and equipment are recognised

at their acquisition or production costs and amortised on a linear

schedule according to their presumable useful life. Subsequent

recognition occurs if this is associated with an increase in the

useful value of the tangible asset. The useful life of an asset is

audited annually, along with any residual value, and adjusted if

necessary.

The fair value of the investment property was determined on

the basis of a valuation performed in full by Savills Advisory

Services Germany GmbH & Co. KG for 31 December 2019. For

31 December 2018, the valuation of the property portfolio taken

over from WCM was performed by Cushman & Wakefield LLP for

the last time and by Savills Advisory Services Germany GmbH &

Co. KG for the rest of the property portfolio. The external valua-

tion experts operate impartially from personal, financial and all

other perspectives.

The market values of properties which are held over the long

term for the purpose of rental income or for the purpose of

increasing value (portfolio properties with sustainable incomes)

are determined in accordance with international standards

by using the discounted cash flow (DCF) method. Using this

method, the market value of a property results from the sum

of the discounted cash flow of a – determined by practical

experience – planning period of ten years plus the residual value

of the property discounted on the valuation date at the end of

the planning period, which is determined on the basis of the

sustainable net cash flows from the property’s management.

Properties under construction are measured using the residual

method. When this method is used, the development/manu-

facturing costs including the developer’s margin are subtracted

from the notional market value based on the expected income

from the intended conversion or development. The difference is

the residual value or market value.

Likewise, portfolio properties with economically useful buildings

already on the plot of land and with sufficiently certain devel-

opment potential (“Concept of the highest and best use”; IFRS

13.27 et seq.) are measured using the residual method.

The valuation of undeveloped plots of land is carried out us-

ing the comparable value method with consideration for official

land values of the local property value committees. The residual

method is also used in individual cases in which the potential

usage purpose has been assured under the building regulations.

Properties with negative cash flows (e.g. properties that have

been vacant in the long term) and underused properties in

specific cases (if their usage purpose has been assured under

the building regulations) are measured using the liquidation

value method. The land value is derived in the same way as for

undeveloped land, although removal expenses and potentially

also remaining net income are taken into account too.

EXPLANATION OF ACCOUNTING AND MEASUREMENT METHODS

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Subsidies received are deducted during calculation of the his-

torical costs.

Depreciation and amortisation is carried uniformly across the

Group pursuant to the following useful lives:

Useful life of property, plant and equipment in years 2019 2018

Owner-occupied properties 50–60 50–60

Technical equipment and machines 8–15 8–15

Other furniture and fixtures 3–13 3–13

Impairment tests are carried out on the carrying amounts

of the property, plant and equipment as soon as there are

indicators that the carrying amount of an asset has exceeded its

recoverable amount. Property, plant and equipment is removed

from the books either when disposed or when no economic

benefit can be expected from its continued use or sale. The gain

or loss resulting from the removal of the asset from the books is

recognised through profit or loss in the consolidated statement

of comprehensive income.

D.3 INTANGIBLE ASSETS

Intangible assets are capitalised at their historical cost.

Goodwill is the positive difference between the acquisition costs

of the shares and the fair value of the individual assets acquired

and liabilities and contingent liabilities assumed.

The goodwill resulting from the allocation of the purchase price

is allocated to cash-generating units which will most likely de-

rive value from the merger.

The goodwill is not subject to amortisation; it undergoes an

annual impairment test instead. The goodwill which largely

resulted from the acquisition of WCM had been fully amortised

as at the end of 2018. According to IAS 36.124, impairment losses

for goodwill may not be reversed in subsequent financial years.

D.4 IMPAIRMENTS OF NON-FINANCIAL ASSETS

Every year, intangible assets and property, plant and equipment

are tested for impairment in accordance with IAS 36 and com-

panies measured at equity are tested for impairment in accor-

dance with IAS 28. These tests determine if there are indicators

of a possible impairment. If this is the case, the recoverable

amount for the asset in question is calculated as the higher val-

ue on the basis of the fair value less disposal costs or the value

in use. If the recoverable amount of an asset is lower than the

carrying amount, a valuation allowance is immediately carried

out on the asset through net profit or loss.

In the financial year, there was no occasion to carry out an im-

pairment test on property, plant and equipment, intangible as-

sets with a certain useful life or companies measured at equity

as there were no indicators of impairment or cases of damage.

For goodwill acquired through the acquisition of companies and

businesses, TLG IMMOBILIEN AG carries out the impairment test

annually and also whenever there are indicators of possible im-

pairment.

In the impairment test, any derivative goodwill arising from

a corporate acquisition is allocated to the individual cash-

generating units that are likely to profit from the synergies

generated by the merger. If the carrying amount of the cash-

generating unit including the proportional goodwill allocated

to it exceeds its recoverable amount, the difference must be

deducted from the goodwill allocated to that cash-generating

unit. The write-downs of the goodwill may not be reversed

at a later date. If the impairment of the cash-generating unit

exceeds the carrying amount of the goodwill allocated to it, the

additional impairment must be recognised by proportionately

impairing the carrying amounts of the assets allocated to the

cash-generating unit. However, the carrying amount of an asset

may not fall below its fair value less costs of disposal, its value

in use (if this can be determined) or to a value below zero.

D.5 OTHER FINANCIAL ASSETS

Generally, financial assets are accounted for on the trading day.

Available-for-sale financial assets are measured at fair value on

the reporting date or, if the fair value cannot be reliably deter-

mined, at cost.

D.6 RECOGNITION OF LEASES BY THE LESSEE

IFRS 16 introduces a single lessee accounting model. According

to IFRS 16, a contract is a lease if it grants the right to use an

asset for a period of time in exchange for consideration. From

the date on which the lessor hands the asset over to the lessee

for use, the lessee must recognise a liability and a correspond-

ing right of use to the leased asset (a “right-of-use asset”). The

liability for the lease is recognised as a liability equal to the

present value of the future lease payments. The historical cost


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of the right-of-use asset consists of the liability for the lease and

any other components. The right-of-use asset is depreciated on

a straight-line basis over the term of the contract or over its

useful life if shorter. The current lease payments are split into an

interest and a principal component and reduce the liability for

the lease accordingly.

The right-of-use asset is recognised separately from other assets

in the line item “Right-of-use assets”. Liabilities for leases are

recognised in the line item “Other non-current liabilities”.

The TLG IMMOBILIEN Group utilises the recognition exemptions

provided by IFRS 16.5 and, as such, does not recognise right-of-

use assets or liabilities for leases for leases with a contractual

term of twelve months or less or to leases (on a case-by-case

basis) in which the underlying asset is of low value. The expens-

es resulting from such contracts are recognised through profit or

loss when the leased objects are used.

D.7 RECOGNITION OF LEASES BY THE LESSOR

According to IFRS 16, the approach set out by IAS 17 (Leases)

which differentiates between operating and finance leases con-

tinues to apply to lessors. The list of criteria for assessing a fi-

nance lease has been adopted as-is from IAS 17.

Under IFRS 16, rental agreements for the properties are to be

categorised as operating leases as the significant risks and op-

portunities in connection with the property remain with the TLG

IMMOBILIEN Group.

The income from operating leases is recognised as net operat-

ing income from letting activities in the statement of compre-

hensive income across the term of each contract.

D.8 INVENTORIES

Inventories include land and buildings intended to be sold as

part of the normal course of business. This can exceed a period

of twelve months. Upon acquisition, inventories are measured

at historical cost. On the reporting date, inventories are mea-

sured at the lower of historical cost or net realisable value.

The net realisable value comprises the estimated sale proceeds

that can be achieved in the normal course of business, less the

estimated costs accrued until completion and the estimated

necessary selling expenses.

See section D.22 for the treatment of borrowing costs.

D.9 RECEIVABLES AND OTHER ASSETS

Trade receivables and other assets are recognised at fair value

plus transaction costs when they are first added to the state-

ment of financial position. The subsequent measurement is at

amortised cost.

The Group uses the simplified impairment model of IFRS 9 to

determine the expected credit losses from trade receivables

and other receivables from tenants. It therefore forms a risk

provision equal to the lifetime ECL (expected credit loss) upon

initial recognition and on every subsequent reporting date. IFRS

9 defines the lifetime ECL as the expected credit losses that arise

if borrowers default on their obligations at some time during the

expected life of the financial asset.

D.10 CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash, demand deposits and

other current, highly liquid financial assets with an original term

of up to three months, as well as overdrafts. Exploited over-

drafts are recognised in the statement of financial position un-

der current liabilities due to financial institutions.

Restricted credit is recognised under financial assets if it cannot

be recognised under cash and cash equivalents.

D.11 ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE

The item “Assets classified as held for sale” can contain individ-

ual non-current fixed assets as well as groups of assets (disposal

groups) or corporate components (discontinued operations) if a

disposal is considered highly probable within the next twelve

months. Furthermore, assets are only classified in line with

IFRS 5 if, in their present condition, they can be immediately

disposed of at a standard and acceptable price for the sale of

such assets. In practice, these criteria on individual investment

properties are considered met if a notarised purchase contract

exists on the reporting date, even if the transfer of benefits and

encumbrances is due to take place in a subsequent period.

Liabilities which are being disposed of as part of the planned

sale are a component of the disposal group or discontinued op-

eration and are disclosed separately.

In accordance with IFRS 5, the assets classified as held for sale

are measured at the lower of their carrying amount or fair value.

Investment property recognised under assets classified as held

for sale is measured at fair value in line with IAS 40.


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D.12 LIABILITIES DUE TO FINANCIAL INSTITUTIONS AND

CORPORATE BONDS

When first included in the statement of financial position, lia-

bilities due to financial institutions are recognised at fair value

less the transaction costs directly linked to the loan. After initial

recognition, interest-bearing loans are valued by using the ef-

fective interest rate method at amortised cost. Gains and losses

are recognised through profit or loss at the time the liabilities

are written off as well as during amortisation.

Changes to rates in terms of the amount and/or date of interest

and repayments will result in the recalculation of the carrying

amount of the liability in the amount of the cash value and on

the basis of the originally determined effective interest rate. The

difference between this and the previous carrying amount of

the liability is recognised through profit or loss.

If changes to rates lead to significantly different contractual con-

ditions according to IFRS 9.B.3.3.6, the original liability is treated,

in accordance with IFRS 9.3.3.2, as though it were completely

repaid. Subsequently, a new liability is then recognised at fair

value.

D.13 PENSION PROVISIONS

Pension provisions result from obligations towards employees.

The pension scheme in the Group involves both defined contri-

butions and defined benefits.

The expenses for the benefits provided through the defined

benefit schemes are determined using the projected unit credit

method. This method factors in the known pensions and earned

credits towards future pension payments on the reporting date,

as well as the expected future increases in salaries and pen-

sions. An actuarial valuation is carried out for each measure-

ment date.

The Company Pension Act (BetrAVG) forms the regulatory

framework in Germany; pension increases are therefore based

on inflation. Some commitments have a guaranteed interest

rate of 1.0% p.a., in which case no other trend is recognised.

TLG IMMOBILIEN bears the actuarial risks such as the longevity

risk, the interest risk and the inflation risk. TLG IMMOBILIEN is not

exposed to any other plan-specific risks.

Actuarial gains and losses are entered in the statement of finan-

cial position completely within the period of their origination

and listed separately under other reserves. The actuarial gains

and losses are no longer entered in the statement of financial

position in subsequent periods.

The amount of pension benefits promised under the defined

benefit plans is based on the allowable length of service and the

agreed pension component.

The interest rate effect contained in the pension expenses is

recognised under interest expenses in the consolidated state-

ment of comprehensive income. The service cost is recognised

under personnel expenses.

In line with the statutory regulations, TLG IMMOBILIEN pays

contributions to statutory pension schemes for defined benefit

plans. The ongoing contributions are recognised under personnel

expenses as social security contributions. Once the contributions

are paid, the Group has no further benefit obligations.

D.14 SHARE-BASED PAYMENTS

As compensation for work performed and as an incentive to

build long-term ties with TLG IMMOBILIEN, the Management

Board and selected managers of the Group receive share-based

payments in the form of a long-term incentive (LTI) scheme.

The LTI entitles the beneficiary to an amount of remuneration

determined by the price of the shares of the company. As such,

it is a share-based payment transaction in the sense of IFRS 2.

Claims under the LTI plan are settled in cash, rendering it a

cash-settled plan.

In accordance with IFRS 2.30, cash-settled plans require the rec-

ognition of a provision in the income statement over the vesting

period. The expenses are recognised as personnel expenses. On

every reporting date, a suitable measurement method must be

used to measure the fair value of the liability and the provision

must be adjusted to that value.

For a description of the LTI scheme, see section H.10 and the

remuneration report in the management report.


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For financial instruments to be recognised at their fair value, the

fair value is generally calculated using the corresponding market

and stock exchange rates. If no market or stock exchange

rates are available, the fair value is measured using standard

measurement methods with consideration for instrument-

specific market parameters. The fair value is calculated using the

discounted cash flow method, whereby individual credit ratings

and other market conditions are taken into account in the form

of conventional liquidity spreads when calculating the present

value.

The relevant market prices and interest rates observed on the

reporting date – and obtained from recognised external sources

– are used as input parameters for the measurement models

when calculating the fair value of derivative financial instru-

ments.

D.18 DETERMINATION OF FAIR VALUE

Under IFRS 13, the fair value is the price obtained from selling an

asset or paid for transferring a liability on the principal market

or, where no principal market exists, the most advantageous

market. The fair value is to be calculated using measurement

parameters as inputs which are as close to the market as pos-

sible. The fair value hierarchy categorises the inputs used in

valuation techniques into three levels, based on their proximity

to the market:

Level 1: The (unadjusted) quoted prices in active markets

for identical assets or liabilities that the entity can access at

the measurement date

Level 2: Inputs other than quoted market prices included

within Level 1 that are observable for the asset or liability,

either directly (i.e. the price) or indirectly (i.e. derived from

the price)

Level 3: Measurement parameters based on unobservable

inputs for the asset or liability

If the inputs used to measure fair value are categorised into

different levels of the fair value hierarchy, the fair value mea-

surement is categorised in its entirety in the level of the lowest

level input that is significant to the entire measurement.

The company checks for transfers between the levels at the

end of each financial year. In the 2019 financial year, just as in

the previous year, there were no transfers between individual

input levels.

D.15 OTHER PROVISIONS

Other provisions are recognised when a legal or factual obliga-

tion of the TLG IMMOBILIEN Group consists of a past event, and

the outflow of resources is probable and a reliable estimation of

the amount of the obligation is possible. Provisions are discount-

ed if this results in a significant effect. Effects from discount-

ing provisions over time are recognised in interest expenses.

The discount rate corresponds to an interest rate, before taxes,

which reflects the current market expectations as well as the

risks specific to each debt.

D.16 DERIVATIVE FINANCIAL INSTRUMENTS

In the TLG IMMOBILIEN Group, derivative financial instruments

are used to cover interest rate risks from real estate financing.

TLG IMMOBILIEN only hedges against cash flows resulting from

future interest payments. Derivative financial instruments are

recognised at fair value. Changes in the fair values of the deriv-

ative financial instruments are recognised through profit or loss

as long as there is no hedging relationship in the sense of IFRS 9.

All hedging relationships were discontinued at the start of the

second quarter of 2017. Ever since, all changes in market val-

ues are presented through the item “Result from the remea-

surement of derivative financial instruments”. The changes in

market value that have been presented as other comprehensive

income and allocated to an equity reserve in prior periods will

be reversed on a pro-rata basis over the remaining term of each

underlying transaction. If the underlying transaction ceases to

exist, the amounts that are still in other comprehensive income

are immediately recognised through profit or loss.

D.17 FAIR VALUES OF FINANCIAL INSTRUMENTS

The fair values of the financial instruments are determined

on the basis of corresponding market values or measurement

methods. For cash and cash equivalents and other current pri-

mary financial instruments, the fair values correspond approx-

imately to the carrying amounts in the statement of financial

position on each key date.

With regard to non-current receivables and other assets and lia-

bilities, the fair value is determined on the basis of the expected

cash flows using the applicable reference interest rates on the

date of the statement of financial position. The fair values of the

derivative financial instruments are calculated on the basis of

the reference interest rates plus their own risks and the counter-

party risk on the accounting date.


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The fair value calculation of investment property is categorised

under Level 3 of the measurement hierarchy of IFRS 13.86

(measurement on the basis of unobservable input factors). We

refer to the explanations on the measurement of investment

property in sections D.1 and E.1. See sections D.16 and H.1

in connection with the measurement of derivative financial

instruments.

In summary, the fair value hierarchy is as follows:

Level 2 Level 3

Other non-current financial assets x

Investment property x

Liabilities due to financial institutions x

Derivative financial instruments x

D.19 RECOGNITION OF INCOME AND EXPENSES

Income from letting activities where the property’s rental

agreement or lease is classified as an operating lease is rec-

ognised as a straight line over the term of the contract. Rental

concessions are recognised in net loss, under total revenue from

letting activities, over the term of the rental agreement or lease.

Furthermore, the net operating income from letting activities

contains income from the recharging of operating costs, in so

far as the rechargeable costs and the amount of income can be

reliably determined and the services have been rendered.

The income from operating costs must be divided into sepa-

rate lease components and non-lease components. Lease

components are elements of the consideration for the rental

relationship and therefore increase rental income. This applies

to land tax and building insurance as types of operating costs.

TLG IMMOBILIEN has the role of principal for all other types of

operating costs as the inventory risk is always borne by TLG

IMMOBILIEN, especially in the event of vacancies.

Income from the disposal of property is recognised once the

significant risks and opportunities associated with the property

have transferred to the purchaser. The economic transfer

of ownership can generally be implied once the essential

ownership rights, rights of use and power of disposal have

transferred to the purchaser. Turnover is not realised as long as

there are still major benefit obligations, yield guarantees or a

right to return on the part of the purchaser.

Operating expenses are recognised through net loss when the

service is rendered or on the due date of their accrual.

Interest is recognised as a gain or loss on an accrual basis.

D.20 GOVERNMENT GRANTS

Government grants are recognised only when there is sufficient

certainty that the grant will be received and that the entity will

comply with the conditions attached to the grant. The grant is

recognised as income over the period necessary to match it

with the related costs, which it is intended to compensate, on a

systematic basis.

Investment subsidies are grants intended to facilitate the acqui-

sition or creation of an asset. The TLG IMMOBILIEN Group deducts

them from the historical cost of the asset on the assets side of

the statement of financial position. As the resulting amount of

depreciation is lower, the grants are spread proportionally over

the useful life of the asset, provided that it is subject to depre-

ciation or amortisation.

Ongoing subsidies intended to cover maintenance, rental and

expenditure are recognised in net profit. They are recognised

under other operating income.

D.21 CURRENT AND DEFERRED TAXES

Income taxes represent the sum of current and deferred taxes.

Current tax expenses are determined on the basis of the tax-

able income for the year. The taxable income differs from the

net income from the consolidated statement of comprehensive

income due to income and expenses which are tax-deductible,

untaxable or taxable in later years. The liabilities and provisions

of the Group for current taxes are calculated on the basis of the

current tax rates.

Deferred taxes are recognised for the differences between the

carrying amounts of the assets and liabilities in the consolidated

financial statements and the corresponding taxable values as

part of the calculation of taxable income. Deferred tax liabilities

are generally recognised for all taxable temporary differences;

deferred tax claims are recognised in so far as it is likely that

taxable gains exist for which the deductible temporary differ-

ences can be used. Deferred tax claims also include reductions

in tax resulting in subsequent years from the expected use of

existing taxable loss carryforwards (or similar items) and whose

realisation is ensured with a sufficient degree of certainty. Fur-

thermore, deferred taxes are recognised for outside basis differ-

ences if the criteria are met.


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Deferred tax liabilities and claims are calculated on the basis

of the tax rates (and tax legislation) which will probably be in

force when the liability is settled or the asset is realised. The tax

regulations passed by the German Bundestag and Bundesrat

and those in force on the reporting date are used as a refer-

ence. The measurement of deferred tax claims and liabilities

reflects the tax consequences which could result from the way

the Group expects to settle the liability or realise the asset on

the reporting date.

Current or deferred taxes are recognised in profit or loss in the

consolidated statement of profit or loss unless they are being

recognised in connection with items of other comprehensive

income or equity. In such a case, the current and deferred taxes

are also to be recognised in other comprehensive income or

directly in equity.

Deferred tax claims and deferred tax liabilities are offset if the

Group has an enforceable legal claim to offset actual tax refund

claims against its actual tax liabilities and if the deferred tax

claims and liabilities concern income tax which will be collected

by the same tax office and which concerns the same tax subject.

Naturally, the calculation of actual and deferred taxes is subject

to certain unknown factors which require estimates and discre-

tionary decisions. New information might become available in

future periods which incites the Group to examine the appropri-

ateness of discretionary decisions; such a change can affect the

amount of tax liabilities and future tax expenses.

D.22 BORROWING COSTS

If qualifying assets exist, borrowing costs are capitalised if they

are significant.

D.23 MAJOR DISCRETIONARY DECISIONS AND ESTIMATES

The application of accounting and measurement methods re-

quires the management to make assumptions and estimates

which will influence the carrying amounts of the recognised as-

sets, liabilities, income and expenses, as well as the disclosure

of contingent liabilities.

The inherent uncertainty of these assumptions and estimates

can lead to events which will necessitate adjustments to the

carrying amounts or disclosure of certain assets and liabilities

in the future.

This applies to the following issues in particular:

The measurement of investment property: The expected

cash flows, the presumed vacancy rate, the discount rate

and the capitalisation rate in particular represent significant

measurement parameters. Items are measured using the

discounted cash flow method, whereby future cash flows

are discounted on the reporting date. These estimates

contain assumptions as to the future. Given the number of

properties in question and their geographical distribution,

individual measurement uncertainties generally cancel one

another out statistically. The measurements are made by an

external valuation expert on the basis of publicly available

market data as well as on the basis of the extensive

knowledge of the TLG IMMOBILIEN Group in each regional

sub-market. Please see section E.1.

Whether or not deferred tax assets can be recognised: These

are recognised if it is likely that future tax advantages can

be realised. The actual amount of taxable income in future

financial years and the actual usefulness of deferred tax

assets might deviate from expectations as at the date on

which the deferred assets were capitalised. Please see sec-

tion E.15.

Measurement at equity: TLG IMMOBILIEN‘s share of the joint

capital of Aroundtown (approx. 15.03%) is measured using

the equity method although TLG IMMOBILIEN held less than

20% of the voting rights as at 31 December 2019. As the

company was already promised a seat on the management

board of Aroundtown as part of the share acquisition and as

this has made it possible to exercise significant influence,

the interest in Aroundtown is measured using the equity

method in accordance with IAS 28.6. Mr Ran Laufer was

appointed officially as the member of the supervisory board

assigned by TLG IMMOBILIEN in the general meeting on

16 December 2019. Please see section E.3.


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Furthermore, the following general assumptions and estimates

are of lesser significance:

For assets which are to be disposed of, the company must

determine whether they can be sold in their current condi-

tion and whether their disposal can be considered highly

probable in the sense of IFRS 5. If this is the case, the assets

and, if necessary, their related liabilities must be recognised

and measured as assets or liabilities held for sale.

The recognition and measurement of other provisions: With

regard to recognition and measurement, there is uncertainty

regarding future increases and the amount, date and proba-

bility of each provision being required.

Share-based payments: In accordance with IFRS 2, the costs

of providing share-based payments in cash-settled plans are

measured at fair value as at the date on which they are paid

and on each subsequent reporting date. For the purposes

of calculating the provision, the most suitable estimation

method must be determined; this method is partially based

on assumptions.

Operating cost account: There is uncertainty in the deter-

mination of deferred operating costs for properties newly

added to the portfolio.

More detailed disclosures on estimates and assumptions can be

found in the information on the individual items. All assump-

tions and estimates are based on the circumstances and judge-

ments on the reporting date.

The estimate regarding future business developments also fac-

tored in the realistically expected future economic environment

in the sectors and regions in which the TLG IMMOBILIEN Group

operates. Although the management assumes that the assump-

tions and estimates it used are reasonable, any unforeseen

changes to these assumptions can influence the net assets, cash

flows and financial performance of the Group.

D.24 DISCLOSURE OF BUSINESS SEGMENTS

The business activities of TLG IMMOBILIEN revolve around the

letting and operational management of its portfolio of commer-

cial real estate. Its business activities also involve the use of

market forces by acquiring and disposing of properties in order

to optimise its real estate portfolio.

As part of internal reporting, these activities are allocated to

the segment on the letting and operational management of the

company’s real estate portfolio.

Therefore, in line with the criteria of IFRS 8, only one report-

able segment which encompasses all operating activities of the

Group, including WCM, was identified. Reports on this segment

are regularly submitted to the main decision-makers. The main

decision-makers manage the allocation of resources for this

segment and are responsible for monitoring its profitability. The

main decision-maker of TLG IMMOBILIEN AG is the Management

Board.

Revenue is generated by a large number of tenants. More than

10% of the total revenue was generated by one client. In the

2019 financial year, EUR k 26,795 of the total revenue was attrib-

utable to this client (previous year EUR k 28,474).

D.25 RECOGNITION OF NON-CONTROLLING INTERESTS

The limited liability capital of non-controlling shareholders is al-

ways recognised under other liabilities as liabilities to non-con-

trolling interests in accordance with IAS 32.18(b) in conjunction

with IFRS 9.4.2.1.

The other shares of non-controlling shareholders are recognised

on the basis of whether the shares are to be presented within

equity or liabilities in line with their contractual structures in ac-

cordance with IAS 1.54 (q). Primarily, this depends on the extent

to which the non-controlling interests participate in the profit or

loss of the company through their contractual structures (put

options, guaranteed dividends, etc.).


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E. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

E.1 INVESTMENT PROPERTY

In the 2019 and 2018 financial years, the carrying amount of the

investment property developed as follows:

in EUR k 2019 2018

Carrying amount as at 01/01 4,067,527 3,383,259

Acquisitions 88,419 140,176

Capitalisation of construction activities and modernisation expenses 52,284 33,070


Reclassification as assets held for sale –155,947 –48,408

Reclassification as property, plant and equipment 0 –1,375

Fair value adjustments 638,366 552,884

Disposals –4,800 0

Carrying amount as at 31/12 4,707,397 4,067,527

The portfolio strategy of TLG IMMOBILIEN stipulates the concen-

tration on the asset classes of office and retail, as well as hotels

to a more limited extent. Properties that represent key prop-

erties for future development measures have been part of the

separate invest asset class since 30 June 2019.

The office portfolio focuses on promising A and B-rated loca-

tions. Hotel properties are situated in selected central locations

and are leased to well-known operators on a long-term basis.

The retail portfolio is more widely distributed and is character-

ised by retail properties in attractive micro-locations, most of

which have anchor tenants operating in the field of food retail.

Reclassifications as assets held for sale of EUR k 155,947 took

place in 2019 (previous year EUR k 48,408). Besides six prop-

erties which have been sold through individual transactions,

NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

the reclassifications concerned 29 retail properties which were

disposed of as part of disposals of companies. The sales of com-

panies concern six real estate companies of WCM Beteiligungs-

und Grundbesitz-AG. With the exception of two properties with

a proportional value of EUR k 3,018, the transfer of benefits and

encumbrances has taken place for all properties. Of the changes

in the value of the properties held for sale amounting to EUR

k 21,548 (previous year EUR k 7,921), 37.2% is attributable to

properties disposed of as part of sales of companies.

At EUR k 88,419 lower than in the previous year (EUR k 140,176),

the acquisitions concern the office property “Westside Office”

in Bonn.

Of the additions of EUR k 52,284 (previous year EUR k 33,070)

through the capitalisation of construction activities, EUR k 22,652

(previous year EUR k 11,090) is attributable to current measures,

EUR k 9,570 (previous year EUR k 11,566) is attributable to ren-

ovations for tenants and EUR k 20,062 (previous year EUR k

10,414) is attributable to development measures. The increase

in additions from current measures reflects the increased invest-

ments in the preservation and improvement of the portfolio.

Around 61% of the capitalisations attributable to development

measures took place for the two office projects under construc-

tion: “NEO” and “Annenhöfe” in Dresden. Essentially, the other

development measures concern preparations for other construc-

tion projects as well as expansions and modernisations of food

retail properties.

The carrying amounts of the investment property were calculat-

ed as at the reporting date on the basis of a valuation performed

by Savills Advisory Services Germany GmbH & Co. KG. The fol-

lowing overview presents the applied valuation techniques bro-

ken down by asset class.

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As at 31/12/2019

Strategic portfolioNon-

strategic portfolio TotalOffice Retail Hotel Invest1 Total

Discounted cash flow method

Valuations 54 208 7 5 274 45 319

Investment Properties in EUR k 2,076,075 1,078,010 345,542 551,298 4,050,925 228,714 4,279,639

Liquidation/comparative value method (official land values)

Valuations 1 2 0 4 7 19 26

Investment properties in EUR k 3,400 6,208 0 74,700 84,308 1,550 85,858

Residual method

Valuations 0 0 0 6 6 0 6

Investment properties in EUR k 0 0 0 341,900 341,900 0 341,900

Total

Valuations 55 210 7 15 287 64 351

Investment properties in EUR k 2,079,475 1,084,218 345,542 967,898 4,477,133 230,264 4,707,397

1 One independently usable sub-area of a property otherwise valued using the discounted cash flow method has been valued using the residual method. The proportional values have been allocated to each valuation method.

As at 31 December 2019, 13 properties (EUR k 426,208) with

development potential have been identified in which a higher

use is possible in line with the “concept of the highest and best

use” of IFRS 13. Two of these properties (EUR k 35,700) are un-

der construction.

Making up 90.9% of the value, the vast majority of the properties

have been valued using the discounted cash flow method. The

liquidation/comparative value method on the basis of official

land values was used on undeveloped plots of land, developed

plots of land with negative cash flows (e.g. properties that had

been vacant in the long term) and on underused properties

(1.8%). The residual method was applied in six valuations which

made up 7.3% of the total value. Use of the residual method

requires the future use to have been determined with sufficient

certainty and there to be no significant obstacles preventing

implementation. Properties under construction are generally

measured using the residual method. For the properties measured

using the residual method, the outstanding construction costs –

including ancillary construction costs and costs of unforeseeable

developments – have been estimated at an average of EUR


3,147 per square metre of gross floor area (previous year EUR

2,824 per square metre of gross floor area) and the developer’s

margin at between 3% (previous year 10%) and 15% (previous

year 20%) for the measurement as at 31 December 2019. In line

with the lower level of risk, the developer’s margins are at the

lower end of the scale for properties which are already under

construction.

In 2019, the increase in the fair values (remeasurements) totalling

EUR k 638,366 (previous year EUR k 552,884) was largely due to

the highly dynamic market developments, especially in Berlin,

as well as progress in individual property development projects.

At 94%, the largest remeasurement is attributable to properties

in Berlin. It is the result of strong market rent growth in 2019

which was also reflected by new rental agreements concluded

in 2019. This development brought with it a decrease in yields,

especially for highly sought-after office locations in Berlin. The

remeasurement was almost entirely attributable to the dormant

portfolio of investment property. These are properties that were

in the portfolio on both 1 January and 31 December 2019, not

including acquisitions and reclassifications as assets held for sale

carried out in the financial year.

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The following overview breaks down key measurement param-

eters for the dormant portfolio by region from year to year.

Dormant portfolio as at 31/12/2019 versus 31/12/20181 Unit Berlin

Dresden/ Leipzig/ Rostock Rhine-Main

Other locations Total

Investment properties as at 31/12/2019 EUR k 2,181,037 895,021 646,127 896,413 4,618,597

Change from 31/12/2019 to 31/12/2018 EUR k 610,527 78,993 13,553 –17,769 685,304

Change from 31/12/2019 to 31/12/2018 % 38.9 9.7 2.1 –1.9 17.4

Discount rate, Weighted average as at 31/12/2019 % 3.77 4.64 4.26 5.00 4.24

Change from 31/12/2019 to 31/12/2018 pp –0.36 –0.13 –0.01 0.00 –0.24

Capitalisation rate, Weighted average as at 31/12/20192 % 4.30 6.04 5.19 6.57 5.21

Change from 31/12/2019 to 31/12/20182 pp –0.54 –0.05 –0.16 0.12 –0.34

Annualised in-place rent as at 31/12/2019 EUR k 66,707 50,653 35,711 66,785 219,856

Change from 31/12/2019 to 31/12/2018 EUR k 5,297 538 971 –463 6,343

Change from 31/12/2019 to 31/12/2018 % 8.6 1.1 2.8 –0.7 3.0

Average actual rent as at 31/12/20193 EUR/sqm/month 13.01 9.85 14.79 9.67 11.11

Change from 31/12/2019 to 31/12/20183 % 8.7 1.1 2.3 2.0 3.6

Average market rent as at 31/12/20193 EUR/sqm/month 16.55 10.99 14.73 9.03 11.92

Change from 31/12/2019 to 31/12/20183 % 9.6 5.4 5.1 0.6 5.1

EPRA Vacancy Rate as at 31/12/2019 % 1.0 2.4 6.7 4.8 3.1

Change from 31/12/2019 to 31/12/2018 pp –0.9 0.3 –1.7 1.3 –0.3

WALT of temporary rental agreements as at 31/12/2019 years 5.4 6.9 5.5 4.9 5.6

Change from 31/12/2019 to 31/12/2018 years –0.5 –0.3 –0.5 –0.3 –0.4

1 Investment property by 31 December 2019 excluding acquisitions in 20192 The capitalisation rate (weighted average) is only calculated for the properties measured using the discounted cash flow method.3 The calculation does not include the invest asset class.

With regard to the dormant portfolio, the EUR k 610,527 or 38.9%

change in the value of the Berlin portfolio year over year reflects

the dynamism of the local market that is underlined by the low-

er discount and capitalisation rates as well as the higher market

rent. Similar – albeit significantly weaker – effects can be seen in

Dresden, Leipzig and Rostock, as well as in the Rhine-Main area.

The decline in value in the other locations was essentially due

to the negative performance of individual neighbourhood shop-

ping centres. The dormant portfolio experienced a EUR k 6,343

or 3.0% increase in annualised in-place rent in 2019 overall at

the same time as a 0.3 pp reduction in the EPRA Vacancy Rate

to 3.1% and a weighted average lease term (WALT) of 5.6 years.


TLG IMMOBILIEN AG divides its portfolio into a strategic portfolio

and a non-strategic portfolio. As at 30 June 2019, the invest

asset class was added to the strategic portfolio which initially

comprised the office, retail and hotel asset classes. The table

below presents the fair values of the investment property by

the strategic classification of the portfolio and by asset class

by 31 December 2019. For comparative purposes, the overview

of the values from the previous year has also been adapted to

the new portfolio classifications. Overall, 14 properties which

were allocated to the office and retail asset classes in the pre-

vious year have been reclassified into the invest asset class.

The reclassified office properties made up 77.6% of the carrying

amount by 31 December 2018.

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As at 31/12/2019


strategic portfolio TotalOffice Retail Hotel Invest Total


Discount rate, weighted average in % 4.15 4.89 4.35 3.41 4.19 5.39 4.25

Capitalisation rate, weighted average in %1 4.97 6.35 5.32 3.79 5.15 6.59 5.22

Average actual rent in EUR/sqm/month2 12.63 10.23 13.71 – 11.63 7.88 11.17

Average market rent in EUR/sqm/month2 14.84 9.79 16.38 – 12.68 7.12 11.96

EPRA Vacancy Rate in % 3.4 2.8 2.2 1.0 2.8 6.4 3.1

Proportion of temporary rental agreements in % 97.7 97.6 98.8 98.1 97.8 95.9 97.6

1 The capitalisation rate (weighted average) is only calculated for the properties measured using the discounted cash flow method.2 The calculation is made for the entire strategic portfolio and for the overall portfolio, not taking the invest asset class into consideration.

As at 31/12/2018


strategic portfolio TotalOffice Retail Hotel Invest Total


Discount rate, weighted average in % 4.29 4.91 4.37 4.01 4.44 5.17 4.50

Capitalisation rate, weighted average in %1 5.28 6.34 5.55 4.63 5.52 6.25 5.58

Average actual rent EUR/sqm/month2 11.57 10.19 13.18 – 11.06 7.58 10.42

Average market rent EUR/sqm/month2 13.18 9.70 16.13 – 11.83 6.99 10.94

EPRA Vacancy Rate in % 4.4 2.3 3.3 2.0 3.3 3.5 3.3

Proportion of temporary rental agreements in % 97.4 97.4 98.9 97.9 97.6 97.0 97.5

1 The capitalisation rate (weighted average) is only calculated for the properties measured using the discounted cash flow method.2 The calculation is made for the entire strategic portfolio and for the overall portfolio, not taking the invest asset class into consideration.

As at the reporting date, TLG IMMOBILIEN assumes that future

fluctuations in fair value will be largely due to factors that lie

outside of the discretionary scope of TLG IMMOBILIEN. These

factors essentially include the discount and capitalisation rates

used in the measurement.


In addition to the calculation of market value, a sensitivity anal-

ysis was carried out when the discount and capitalisation rates

changed. If the discount and capitalisation rates on which the

measurement of the properties was based had increased or de-

creased by 0.5 percentage points, the values as at 31 December

2019 would have been the following:

Investment properties as at 31 December 2019 – sensitivity analysisAs at 31/12/2019

Investment properties Discount rate

Values in EUR k –0.5% 0.0% +0.5%

Capitalisation rate

–0.5% 5,302,434 5,098,664 4,904,904

0.0% 4,927,794 4,707,397 4,564,034

+0.5% 4,626,664 4,454,834 4,290,954

Investment properties as at 31 December 2018 – sensitivity analysisAs at 31/12/2018

Investment properties Discount rate

Values in EUR k – 0.5% 0.0% +0.5%

Capitalisation rate

–0.5% 4,418,758 4,234,668 4,060,168

0.0% 4,124,568 4,067,528 3,906,048

+0.5% 3,882,188 3,723,978 3,573,948

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The following receivables from minimum lease payments are

expected in the next few years on the basis of the agreements

in effect as at 31 December 2019:

in EUR kDue within

1 year

Remaining term

> 1 to 5 years

Remaining term

> 5 years Total

31/12/2019 216,566 608,325 426,439 1,251,329

31/12/2018 216,214 638,977 520,503 1,375,694

In the 2019 financial year, contingent rents in the amount of EUR

k 275 (previous year EUR k 831) were collected.

The majority of the investment property is encumbered with

collateral for the loans. The properties are generally freely dis-

posable. Financed properties are normally secured by liens on

property and are the subject of assignments of rights and claims

arising from sales contracts. If a property is sold, the finance is

settled by means of an unscheduled repayment if necessary.

E.2 PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE

ASSETS

The property, plant and equipment and intangible assets are pri-

marily attributable to owner-occupied properties (EUR k 8,119;

previous year EUR k 8,104).

The following table shows the individually presented rights of

use to assets which have been recognised as fixed assets as

part of a lease:

Right-of-use assetsin EUR k Properties

Furniture and fixtures Total

As at 01/01/2019 3,353 398 3,752

Additions to right-of-use assets 0 141 141

Disposals of right-of-use assets 1,418 0 1,418

Depreciation and amortisation 242 212 454

As at 31/12/2019 1,694 327 2,020

E.3 SHARES IN COMPANIES MEASURED AT EQUITY

On 1 September 2019, TLG IMMOBILIEN AG acquired a 9.99%

share of the joint capital of Aroundtown from the Avisco Group

(“Avisco”) for EUR 1,016 m. Furthermore, it made use of call op-

tions on 26 September 2019 and 16 October 2019 and therefore

acquired an additional 3.0% and 2.0% of Aroundtown‘s shares.

When the option is used, the price per share corresponds to the

purchase price per share of the share acquisition. On 26 and 27

September 2019, TLG IMMOBILIEN AG acquired another 400,000

shares of Aroundtown on the stock exchange.

As such, TLG IMMOBILIEN AG has a 15.03% stake in the joint

capital of Aroundtown as at 31 December 2019.

Although TLG IMMOBILIEN AG holds less than a 20% share of the

voting rights of Aroundtown as at 31 December 2019, it can ex-

ercise significant influence in accordance with IAS 28.6 as a seat

on the management board of Aroundtown was granted in 2019.

The granting of the seat on the management board had already

been agreed and promised as part of the share acquisition on

1 September 2019.

Due to the agreements and the contractual structuring of the

options as combined put/call options, they are recognised in

such a way that they are considered exercised as at 1 Septem-

ber 2019.

The following table shows summarised earnings and financial

statement data of the Aroundtown Group (consolidated financial

statements according to IFRS) as well as how they have been

taken into account in the consolidated financial statements of

TLG IMMOBILIEN:

in EUR k 31/12/2019

Share of ownership of TLG IMMOBILIEN in % 15.03

Non-current assets 21,701,900

Current assets 3,742,800

Non-current liabilities –11,209,200

Current liabilities –856,600

Net assets (100%) 13,378,900

Less share of minority shareholders and hybrid capital providers –3,793,400

Group‘s share of net assets 1,440,701

Preliminary goodwill 139,940

Carrying amount of the share of companies measured at equity as at 31/12/2019 1,580,641

in EUR k01/01/2019–31/12/2019

Revenue 894,800

Net income 1,709,100

of which attributable to the shareholders of Aroundtown SA 1,308,100

Other comprehensive income (OCI) 9,500

Total comprehensive income for the year 1,718,600

of which attributable to the shareholders of Aroundtown SA 1,317,600


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Essentially, the non-current assets comprise investment property

(EUR 18,127 m, previous year EUR 14,174 m) which is measured

at fair value in accordance with IAS 40 in conjunction with IFRS 13.

In particular, the following key assumptions are made to

determine the fair value of investment property and sensitivity

analyses are used for the measurement:

31/12/2019 31/12/2018

Discount rate, weighted average in % 5.7 5.7

Capitalisation rate, weighted average in % 5.1 5.3

Market rent growth, weighted average in % 1.8 1.8

Administrative costs in % 2.3 2.2

As a result, the portfolio of investment property of Aroundtown

is as follows:

Investment properties as at 31 December 2019 Portfolio overview by asset classAs at 31/12/2019 Office Hotel Retail

Logistics/Wholesale/

Other

Land for development

and other rights Total

Investment properties in EUR m 8,675 5,949 1,015 1,311 1,177 18,127

Average actual rent in EUR/sqm/year 10.4 14.4 10.3 4.6 10.3

EPRA Vacancy Rate in % 11 3.7 9.1 5.5 7.7

In-place rental yield in % 4.5 5.2 4.9 5.6 4.9

WALT in years 4.4 15 5.8 6.1 8.6

Essentially, the non-current liabilities comprise the bonds (EUR

9,138.9 m, previous year EUR 6,351.6 m).

The calculation of the proportionate remeasured equity in

Aroundtown and of the goodwill is preliminary as not all of

the information needed to determine the fair values of the

shares in Grand City Properties SA, the liabilities due to financial

institutions, bonds, and deferred taxes was available with

the necessary level of detail when the consolidated financial

statements of the TLG IMMOBILIEN Group were being prepared

in accordance with IFRS.

The following table shows a reconciliation between the sum-

marised financial information and the carrying amount of the

Group’s shares in Aroundtown:

in EUR k01/09/2019–31/12/2019

Status initial consolidation 1,530,208

Share of consolidated annual result 49,817

Share of other comprehensive income 616

Carrying amount as at 31/12/2019 1,580,641


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The carrying amount of EUR 1,580.6 m as at 31 December 2019

reflects the amortised cost of the shares as determined on the

basis of the net asset value as at the acquisition date (EUR 8.30

per share). As at 31 December 2019, the proportional market

capitalisation of the shares was EUR k 1,467,548. The share

price was EUR 7.98 per share on the reporting date compared to

EUR 7.92 per share on the date of acquisition. In the period

between the acquisition of the shares and the reporting date, a

high of EUR 8.81 per share was reached on 19 February 2020.

Based on the NAV, the purchase price of the shares corresponds

to the value in use of the investment. It reflects the present

value of the estimated future cash flows that will likely result

from the investment’s dividends and the final disposal of

the investment. The fair value of the shares of Aroundtown,

derived from the share price, was lower than the value in

use based on the NAV both on the acquisition date and as at

31 December 2019. Under the impression of the emerging

coronavirus pandemic, significant price losses can be observed

on the stock markets. The relatively small price fluctuations

of the Aroundtown share between the acquisition date and

the balance sheet date do not suggest a long-term decrease

in the value in use of the investment below amortised cost.

Furthermore, Aroundtown had an EPRA NAV per share of around

EUR 8.70 as at 31 December 2019 which surpasses the equity

investment’s measured value of EUR 1,580.6 m or around

EUR 8.60 per share. As such, a write-down to the lower fair

value is not admissible.

E.4 OTHER FINANCIAL ASSETS

The other financial assets are classified as follows:

in EUR k 31/12/2019 31/12/2018

Other loans 11,690 12,015

Receivables from compensation claims 520 0

Account balances with restricted access 16,368 305

Derivative financial instruments 1,607 1,650

Other financial assets 4,872 676

Total 35,056 14,646

The other loans essentially comprise loans to non-controlling

interests in WCM.

The account balances with restricted access are primarily cash

pledged in connection with guarantees and loan agreements.

The other financial assets are non-current up to the value of the

other loans, derivative financial instruments and other assets (in

the amount of EUR k 4,801); the rest is current.


E.5 TRADE RECEIVABLES

The following table gives an overview of the Group trade re-

ceivables:

in EUR k 31/12/2019 31/12/2018

Trade receivables, gross 13,682 16,776

Applicable allowances –2,703 –1,913

Total trade receivables 10,979 14,864

of which from letting activities 10,355 13,906

of which from disposals of properties 129 69

of which other trade receivables 494 888

All trade receivables are current.

For the development of allowances and the collateral received,

please see section H.3.

E.6 OTHER RECEIVABLES AND ASSETS

Other receivables and assets can be broken down as follows:

in EUR k 31/12/2019 31/12/2018

Accruals and deferrals 4,367 5,166

Prepayments 36 44

Accruals and deferrals from rental incentives granted 18,177 15,254

Other assets 1,465 2,264

Total 24,044 22,727

The accruals and deferrals include negative start values from

interest rate derivatives which are reversed over the term of

each hedging instrument.

The accruals and deferrals from rental incentives granted essen-

tially comprise rent-free periods, broker costs and subsidies for

original hotel equipment.

Of the other receivables and assets, EUR k 2,958 is current (pre-

vious year EUR k 2,562); the rest is non-current.

E.7 INVENTORIES

Inventories are subdivided as follows:

in EUR k 31/12/2019 31/12/2018

Land with completed buildings 92 95

Undeveloped land 642 642

Total 734 737

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More information on the inventories can be found in the table

below:

in EUR k 2019 2018

Inventories recognised as expenses in the reporting period 3 0

Inventories with a term of more than one year 731 737

E.8 CASH AND CASH EQUIVALENTS

As at the measurement dates, cash and cash equivalents are

represented as follows:

in EUR k 31/12/2019 31/12/2018

Bank balances 523,946 153,809

Cash in hand 4 83

Total cash and cash equivalents 523,950 153,893

Bank balances are subject to variable interest rates for callable

loans. Short-term deposits are made for time periods of up to

three months.

E.9 ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE

The carrying amount of the assets held for sale includes proper-

ties for which the company had notarised purchase agreements

as at the reporting date and developed as follows:

in EUR k 2019 2018

Carrying amount as at 01/01 33,080 9,698

Reclassification from investment property 155,947 48,408

Disposal through the sale of land and buildings –186,009 –25,025

Carrying amount as at 31/12/2019 3,018 33,080

The result from the disposal of assets held for sale is recognised

in the statement of comprehensive income under the result

from the disposal of property.

E.10 EQUITY

As at the reporting date, the subscribed capital of the company

was EUR k 112,074 (previous year EUR k 103,385). The share

capital is fully paid-in. There are no other share types.

In the second quarter of 2019, TLG IMMOBILIEN had resolved to

increase its registered share capital from EUR 103,384,729.00 to

EUR 111,884,729.00, making partial use of its authorised capital

and excluding the subscription rights of the shareholders. The

8,500,000 new no-par value bearer shares were issued for insti-


tutional investors through accelerated book-building as part of a

private placement in late June 2019 and have been entitled to a

share of profits since 1 January 2019.

The shares were issued at a placement price of EUR 26.13 per

share. The gross proceeds were therefore around EUR 222 m.

Development of other components of equity

The capital reserves amount to EUR k 1,148,041 (previous year

EUR k 1,011,381). In particular, the changes (EUR k 136,660) are

due to the capital increase in exchange for cash contributions

in the second quarter of 2019, the share capital increase in ex-

change for contributions in kind in connection with the settle-

ment offer to the outside shareholders of WCM AG and the with-

drawal of EUR k 79,703 for appropriation to net retained profit

(retained earnings).

The retained earnings of the Group have increased by EUR k

553,621 to EUR k 1,577,372 (previous year EUR k 1,023,751). This

was due to the EUR k 571,728 in net income attributable to the

shareholders of the parent company, the withdrawal from the

capital reserves as well as the payment of a dividend of EUR k

94,140 to the shareholders in the financial year, which equates

to EUR 0.91 per eligible no-par value share.

The other comprehensive income comprises actuarial gains and

losses of EUR k 3,015 (previous year EUR k 2,199), accumulated

fair value adjustments of derivatives in cash flow hedges of

EUR k 1,301 (previous year EUR k 2,394) and proportional other

comprehensive income from companies measured at equity of

EUR k –616 (previous year EUR k 0).

The deferred taxes are attributable to other comprehensive in-

come as follows:

01/01/–31/12/2019in EUR k

Before deferred

taxesDeferred

taxes

After referred

taxes

Fair value adjustments for interest rate derivatives in cash flow hedges 1,577 –484 1,093

Actuarial gains and losses –1,177 361 –816

01/01/–31/12/2018in EUR k

Before deferred

taxesDeferred

taxes

After referred

taxes

Fair value adjustments for interest rate derivatives in cash flow hedges 831 –90 740

Actuarial gains and losses –352 101 –251

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Development of the equity of hybrid capital providers

On 23 September 2019, TLG IMMOBILIEN issued an unsecured,

subordinated hybrid bond with a total nominal value of EUR k

600 m and a face value of EUR 100,000 through its subsidiary

TLG Finance S.à r.l., Luxembourg (the issuer). The hybrid bond

was issued at an offering price of 98.835% with no fixed

term and cannot be redeemed by TLG IMMOBILIEN until

23 December 2024 and thereafter on any interest payment

date at a redemption price of 100.000%. The bond has a

fixed interest rate of 3.375% p.a. until the first reset date on

23 December 2024. Likewise, the bond has a fixed interest rate

for the first subsequent reset period until 23 December 2029. The

interest rate for this period is calculated on the basis of the five-

year swap rate on 23 December 2024 plus a premium of 3.980%

p.a. Each reset period will be five years after 23 December 2029

and the fixed interest rate will be set analogously at the start

of each reset period. A premium of 4.230% p.a. will be applied

up to 23 December 2044 and a premium of 4.980% p.a. will be

applied from 23 December 2044 onwards. Throughout the term

of the hybrid bond, the issuer can suspend interest payments,

although postponed interest is not itself subject to interest.

In accordance with IAS 32, the hybrid bond must be classified

completely as equity. The raised capital was recognised in equi-

ty, less the transaction costs and with consideration for deferred

taxes. The interest payments to be made to the bond holders

and income taxes attributable to them will be recognised di-

rectly in equity.

E.11 LIABILITIES DUE TO FINANCIAL INSTITUTIONS

Liabilities due to financial institutions have changed due to

scheduled and unscheduled amortisation and due to refinancing.

Loans totalling EUR k 142,796 were taken out in the 2019 finan-

cial year (previous year EUR k 56,202).

As at 31 December 2019, loans totalling EUR k 65,352 (previous

year EUR k 112,739) due in 2020 and the scheduled repayments

to be made in 2020 were recognised as due within one year.

The liabilities were generally secured by the provision of phys-

ical securities, the assignment of rights arising from the rental

agreements and the pledging of shareholdings, with the ex-

ception of WCM. Generally, the overwhelming majority of the

properties in the portfolio serve as collateral.

Liabilities due to financial institutions have the following re-

maining terms:

in EUR k 31/12/2019 31/12/2018

Due within 1 year 76,075 136,613

Due in more than one year 960,812 1,046,342

E.12 CORPORATE BONDS

In November 2017, TLG IMMOBILIEN AG issued an unsecured

bond with a fixed interest rate, a total nominal value of EUR 400

m and a face value of EUR 100,000. The bond was issued at an

offering price of 99.735% with a term ending on 27 November

2024, a coupon of 1.375% p.a. and a total yield of 1.415% p.a.

In the 2019 financial year, two other unsecured bonds were is-

sued with fixed interest rates, a total nominal value of EUR 1.2 bn

and a face value of EUR 100,000 each. Of this amount, EUR 600

m is attributable to a bond issued in May 2019 with an offering

price of 98.379%, a term ending on 28 May 2026 and a coupon of

1.500% p.a. This equates to a total yield of 1.748% p.a. Another

EUR 600 m is attributable to a bond issued in two tranches in

September 2019. Both tranches were issued with a term ending

on 23 September 2022 and a coupon of 0.375% p.a. The first

tranche has a nominal value of EUR 500 m and was issued at an

offering price of 99.549% with a total yield of 0.527% p.a. The

second tranche with a nominal value of EUR 100 m was issued

at an offering price of 99.836% which equates to a total yield of

0.430% p.a. over the term.

E.13 PENSION PROVISIONS

There are pension obligations towards former executives and

managing directors who began working for the company be-

tween 1991 and 2001.

As at 31 December 2019, EUR k 2,508 of the present value of

the benefit obligation was attributable to the group of former

scheme members and EUR k 6,486 was attributable to the group

of pensioners and survivors. The average term of the obligations

towards the managing directors is 13.47 years. The company ac-

crued payments of EUR k –328 (previous year EUR k –314) under

pension schemes in 2019.


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The pension provisions for defined benefit plans are calculated

on the basis of actuarial assumptions in accordance with IAS 19.

The following parameters were applied in the financial years:

in % 31/12/2019 31/12/2018

Discount rate 0.65% 1.60%

Rate of pension progression1 2.00% 2.00%

1 Some commitments have a guaranteed interest rate of 1% p.a., in which case no other trend is recognised.

The 2018G mortality tables were used for the biometric as-

sumptions.

The present value of the pension provisions developed as fol-

lows in the corresponding periods:

in EUR k 2019 2018

Present value of the obligations as at 01/01 8,019 7,858

Interest expense 126 123

Pension payments rendered by the employer directly –328 –314

Actuarial losses 1,177 352

Present value of the obligations as at 31/12 8,994 8,019

The actuarial losses resulting from the adjustment of the

discount rate were recognised in other comprehensive income.

Of this amount, a loss of EUR k 136 (previous year EUR k 243) is

attributable to adjustments made in the current year based on

past experience, a loss of EUR k 1,040 (previous year EUR k 0)

is attributable to changes to financial assumptions and a loss of

EUR k 0 (previous year EUR k 109) is attributable to changes to

demographic assumptions. Overall, other comprehensive income

comprises actuarial losses before deferred taxes of EUR k 4,348

(previous year EUR k 3,171).

Expenses of EUR k 860 (previous year EUR k 802) for defined

benefit plans arose in the current year. These essentially consist

of contributions to the statutory pension scheme.


Based on the obligations accounted for on the reporting dates,

a change to the individual parameters would have had the fol-

lowing impact on the present value of the obligation if the other

assumptions had remained constant.

Sensitivity analysis 2019in EUR k

Change in the

assumption

Increase in the

assumption

Decrease in the

assumption

Discount rate 1.00% 7,904 10,331

Rate of pension progression1 0.50% 9,441 8,584

Sensitivity analysis 2018in EUR k

Change in the

assumption

Increase in the

assumption

Decrease in the

assumption

Discount rate 1.00% 7,072 9,178

Rate of pension progression1 0.50% 8,400 7,669

1 Some commitments have a guaranteed interest rate of 1% p.a., in which case no other trend is recognised.

Increases and decreases in the discount rate, rate of pension

progression or mortality do not cause the same absolute amount

of difference in the calculation of the pension provisions. When

multiple assumptions change at the same time, the resulting

overall effect will not necessarily match the sum of each

individual effect. Furthermore, the sensitivities only reflect a

change to the pension provisions for the specific magnitude of

each change to the assumptions (e.g. 0.5%). If the assumptions

change in a different order of magnitude, this will not necessarily

have a linear impact on the amount of the pension provisions.

E.14 OTHER PROVISIONS

The other provisions developed as follows in the financial year:

in EUR k

As at 01/01/

2019Contri-bution

Utilisa-tion

Rever-sals

As at 31/12/

2019

Provisions for litigation risks 3,821 851 –2,153 –746 1,773

Other miscellaneous provisions 630 5,021 –30 –29 5,592

Total 4,451 5,872 –2,183 –775 7,365

The provisions for litigation risks concern the risks of ongoing

court proceedings and were formed to match the expected

claims. Some legal disputes were settled in the reporting year.

Essentially, the miscellaneous other provisions comprise provi-

sions from share-based payments in cash-settled plans.

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E.15 DEFERRED TAXES

The deferred tax assets and liabilities result from the following

temporary differences and taxable loss carryforwards:

in EUR k

31/12/2019 31/12/2018

Deferred tax assets

Deferred tax liabilities

Deferred tax assets


Investment property and owner-occupied property 0 780.699 0 557.990

Property, plant and equipment 0 1.611 0 1.385

Intangible assets 0 2 17 0

Other non-current financial assets 2,477 0 0 506

Other assets 7,192 10,123 2,009 16,717

Pension provisions 1,420 0 1,149 0

Other provisions 1,027 0 0 798

Financial liabilities 9,628 6,687 3,925 2,216

Other liabilities 1,143 1,871 3,177 349

Deferred taxes on taxable temporary differences 22,887 800,992 10,277 579,961

Loss/interest carryforwards 80,897 0 89,376 0

OBD 0 0 0 181

Total of deferred taxes before offsetting 103,783 800,992 99,653 580,142

Offsetting 103,783 103,783 99,653 99,653

Disclosure after offsetting 0 697,209 0 480,489

The deferred tax claims and liabilities before offsetting are ex-

pected to be realised as follows:

in EUR k 31/12/2019 31/12/2018

Deferred tax claims

– realised after more than 12 months 95,438 86,323

– realised within 12 months 8,345 13,330

Total of deferred tax claims 103,783 99,653


– realised after more than 12 months 795,415 567,986

– realised within 12 months 5,577 12,156

Total of deferred tax liabilities 800,992 580,142

As at the end of the financial year, no deferred taxes for outside

basis differences were recognised (deferred tax liabilities of EUR

k 181 in the previous year).

On the level of WCM, there are unused tax losses of around EUR

158 m for corporation tax and EUR 143 m for trade tax for which

no deferred tax claims have been recognised as it is not suffi-

ciently likely from a current standpoint that they will be useful.

E.16 TAX LIABILITIES

Tax liabilities are subdivided as follows:

in EUR k 31/12/2019 31/12/2018

Provisions for corporation tax 4,492 1,957

Provisions for trade tax 5,021 786

Total tax liabilities 9,514 2,743

The increase in tax provisions compared to the previous year

was essentially due to the higher taxable profits and higher

prior-period income taxes as a risk provision for periods which

have not been assessed conclusively. We refer to the disclosures

in section F.10.


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E.17 LIABILITIES

The liabilities are classified as follows:

in EUR k 31/12/2019 31/12/2018

Trade payables 38,560 35,389

Total of other liabilities 45,139 42,821

Liabilities to non-controlling interests 21,503 22,010

Miscellaneous other liabilities 13,445 10,811

Liabilities for leases 2,031 0

Liabilities to WCM shareholders 2,622 2,627

Liabilities to employees 2,472 1,437

Accruals and deferrals from derivative financial instruments 1,649 1,917

Other taxes 794 3,213

Investment grants 623 786

Liabilities to tenants 0 15

Prepayments received 0 5

Total of liabilities 83,699 78,210

The liabilities have the following remaining terms:

in EUR k 31/12/2019 31/12/2018

Up to 1 year 56,074 49,702

1–5 years 1,675 1,265

More than 5 years 25,950 27,243

Total 83,699 78,210

The liabilities to non-controlling interests mainly concern the mi-

nority shareholders of the WCM subsidiaries as at the reporting

date.

The liabilities to WCM shareholders are due to the guaranteed

dividends for the 2019 and 2020 financial years.

The investment subsidies comprise received subsidies which

are realised pro rata in net profit or loss over the term of the

rental agreement. Of the EUR k 623 in investment subsidies,

EUR k 600 is long term.

The accruals and deferrals from derivative financial instruments

include positive start values from floor transactions which are

reversed over the term of the hedging instrument.

Essentially, the miscellaneous other liabilities comprise debtors

with credit balances and liabilities for leases.

F. NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

F.1 NET OPERATING INCOME FROM LETTING ACTIVITIES

In the 2019 financial year, the income from letting activities

increased by almost 4%, due primarily to the more profitable

operational management of the property portfolio.

The ratio of expenses relating to letting activities to income

from letting activities has improved slightly.

In the financial year, rent guarantees totalling EUR k 494 (previ-

ous year EUR k 163) were accepted.

F.2 RESULT FROM THE DISPOSAL OF PROPERTIES

The result from the disposal of properties developed as follows

in 2019 and in the previous year:

in EUR k01/01/2019 –

31/12/201901/01/2018 –

31/12/2018

Proceeds from the disposal of properties 186,035 25,025

Carrying amount of properties disposed of –186,013 –25,025


Costs of disposing of properties –1,037 –88

Result from the disposal of properties 20,533 7,833

The change in the value of properties held for sale contains the

upward revaluation of four properties which were disposed of

through individual transactions and of various retail properties

which were disposed of as part of the disposal of real estate

companies.

Furthermore, the change in the value of properties held for

sale comprises net income of EUR k 1,338 (previous year EUR k

7,921) resulting from the upward revaluation of two properties

for which purchase agreements have been concluded yet which

had not yet been handed over as at 31 December 2019. The

transfer of benefits and encumbrances took place for the prop-

erties in the first quarter of 2020.

F.3 RESULT FROM THE REMEASUREMENT OF INVESTMENT

PROPERTY

The result from the remeasurement of investment property

remained positive, due mainly to the persistently favourable

market conditions in the 2019 financial year. Besides intensive

asset management, the increase is still due to the highly

dynamic market developments, especially in Berlin. Welcome

progress has also been made in individual property development

projects.

See section E.1 for more details.

NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITIONNOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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F.4 OTHER OPERATING INCOME

The other operating income developed as follows:

in EUR k01/01/2019 –

31/12/201901/01/2018 –

31/12/2018

Reversal of allowances 631 327

Income from previous years 591 1,181

Other income 534 488

Total 1,756 1,996

F.5 PERSONNEL EXPENSES

Personnel expenses were as follows in the 2019 and 2018

financial years:

in EUR k01/01/2019 –

31/12/201901/01/2018 –

31/12/2018

Salaries 11,072 11,588

Social security contributions and pension expenses 1,846 1,614

Bonuses 2,040 1,631

Exit compensation 1,278 200

Share-based payment components under IFRS 2 2,485 1,473

Total 18,720 16,505

Salaries have increased by EUR 1.1 m due to the higher number

of employees. In the previous year expenses still incurred in

connection with the remuneration of the two former members

of the Management Board (EUR 2.0 m). Overall, the personnel

expenses have increased due to provisions for risks in connec-

tion with exit compensation claims and the share-based pay-

ments for the Management Board which was expanded in 2019.

See also section H.10.

F.6 DEPRECIATION AND AMORTISATION

Depreciation and amortisation developed as follows:

in EUR k01/01/2019 –

31/12/201901/01/2018 –

31/12/2018

Goodwill 0 164,724

Intangible assets 919 619

Land, land rights and buildings 464 139

Technical equipment and machines 0 19

Other equipment and furniture and fixtures 345 254

Total 1,728 165,755

NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

F.7 OTHER OPERATING EXPENSES

The other operating expenses essentially comprise the follow-

ing line items:

in EUR k01/01/2019 –

31/12/201901/01/2018 –

31/12/2018

Consultant and audit costs 10,726 5,586

Other 4,074 4,472

General IT and administrative expenses 3,516 2,536

Impairments of receivables 2,763 1,221

Corporate advertising 843 898

Ancillary office costs 559 820

Vehicle and travel expenses 513 594

Other taxes 4 28

Depreciation of real estate inventories 0 20

Reversal of provisions/liabilities 0 –45

Total 22,997 16,128

Essentially, the higher consultant and audit costs arose in con-

nection with the takeover offer of Aroundtown and the planned

merger.

The line item “Other” essentially contains Supervisory Board

remuneration, non-deductible input tax, acquisition costs and

valuation fees.

F.8 FINANCIAL RESULT

The financial result is broken down as follows:

in EUR k01/01/2019 –

31/12/201901/01/2018 –

31/12/2018

Net interest from bank balances 21 4

Net interest from default interest and deferrals 123 187

Other financial income 244 437

Total financial income 388 628

Interest expenses for interest rate derivatives 6,822 6,449

Interest from loans and bonds 28,412 23,719

Interest expenses from pension provisions 126 123

Other interest expenses 8,898 1,817

Total financial expenses 44,257 32,109

Financial result 43,869 31,481

In particular, the increase in financial expenses was due to ad-

ditional interest expenses for the bonds issued in May and Sep-

tember 2019 as well as expenses for the premature repayment

of loans and interest rate hedges in connection with the opti-

misation of the financing structure and resulting from disposals.

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F.9 RESULT FROM THE REMEASUREMENT OF DERIVATIVE

FINANCIAL INSTRUMENTS

In the 2019 financial year, there was expenditure of EUR k 18,940

from the remeasurement of derivative financial instruments (pre-

vious year expenditure of EUR k 7,904).

The negative result is due primarily to changing market interest

rates and the resulting market valuation of interest rate hedges

on the loans.

F.10 INCOME TAXES

The tax expenses/income can be broken down as follows:

in EUR k01/01/2019 –

31/12/201901/01/2018 –

31/12/2018

Current income taxes 9,072 3,354

Actual prior-period income taxes 4,252 –398

Deferred taxes 221,906 207,764

Tax expenses/income 235,230 210,720

Current income taxes have increased by EUR k 5,718. Unlike in

the previous year, the higher taxable profits could not be bal-

anced out by increased use of the interest carryforward.

In particular, the prior-period income taxes are due to a higher

risk provision for periods which have not been assessed con-

clusively.

As in the previous year, the increase in deferred tax expens-

es is due primarily to the higher market values of investment

property which are not recognised in the tax accounts (EUR k

+222,709).


The expected (notional) expenses for income taxes can be trans-

ferred to the income taxes in the statement of comprehensive

income as follows:

in EUR k01/01/2019 –

31/12/201901/01/2018 –

31/12/2018

IFRS earnings before taxes 813,549 521,666

Group tax rate in % 30.68% 30.68%

Expected income taxes 249,556 160,021

Tax rate changes due to relocation of headquarters 0 4,323

Deviating tax rates for subsidiaries –514 –195

Special trade tax regulations 729 –730

Tax-free income –27 –274

Non-deductible expenses 509 51,114

Initial recognition or carry-back of loss carryforwards –3,714 –2,527

Use of loss carryforwards not previously recognised –1,769 0

Losses excluding deferred taxes 1,003 0

Losses that cannot be offset 341 259

Companies measured at equity –15,281 0

Deferred tax on capital adjustment costs 282 0

Actual taxes in previous years 4,252 –500

Deferred taxes for previous years –347 –750

Other tax effects 210 –21

Effective income taxes 235,230 210,720

Effective tax rate in % 28.91% 40.39%

The tax rate to be used to calculate the income tax computation

accounts for the current and – given the current legal situation

– probable corporation tax rates of 15.0% (previous year 15.0%)

and the solidarity contribution of 5.5% (previous year 5.5%) of

the defined corporation tax less any credit. The weighted trade

tax rate for Berlin and the regions in which the parent company

has business premises is approx. 424% for the financial year

(previous year 424%). With consideration for the collection rate

and the base amount of trade tax of 3.5% (previous year 3.5%),

the trade tax rate is therefore 14.85% (previous year 14.85%).

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The domestic tax rate on which the calculated deferred taxes

and expected (notional) tax expenses of the Group are based is

therefore still 30.68%.

The effective tax rate resulting from the income tax expenses

was 28.91% in the reporting year (previous year 40.39%). The

decrease in the tax rate compared to the previous year was due

primarily to the two reasons described below.

The effect resulting from the non-deductible amortisation of

goodwill, which was a significant factor in the tax rate increase

in the previous year did not exist in the reporting year. The tax

effect of non-deductible expenses decreased by EUR k 50,605

compared to the previous year.

In the reporting year, the tax rate was lowered by the tax-free

net income from companies measured at equity (tax effect of

EUR k –15,281).

The deferred tax assets and liabilities before offsetting devel-

oped as follows as at the reporting date:

in EUR k01/01/2019 –

31/12/201901/01/2018 –

31/12/2018

Deferred tax assets at the start of the reporting year 99,653 102,175

Change (in net profit or loss) 1,210 –2,533

Change recognised in equity 2,920 11

Deferred tax assets at the end of the reporting year 103,783 99,653

Deferred tax liabilities at the start of the reporting year 580,142 374,911

Change (in net profit or loss) 223,116 205,231

Change due to scope of consolidation –2,266 0

Deferred tax liabilities at the end of the reporting year 800,992 580,142

Deferred tax claims which are recognised directly to equity result

from actuarial losses for pension obligations, hedge accounting

reserves and transaction costs for the hybrid bond.

For more details on the deferred taxes, see section E.15.


F.11 EARNINGS PER SHARE

The earnings per share are calculated by dividing the net income

for the period attributable to the shareholders by the weighted

average number of ordinary shares outstanding within the re-

porting period.

in EUR k01/01/2019 –

31/12/201901/01/2018 –

31/12/2018

Net income attributable to the share-holders of the parent company, in EUR k 571,728 307,928

Weighted average number of shares outstanding in thousands 107,811 102,842

Basic earnings per share in EUR 5.30 2.99

Potential diluting effect of share-based payments in thousands 0 0

Number of shares with a potential diluting effect in thousands 107,811 102,842

Diluted earnings per share in EUR 5.30 2.99

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94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

G. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTThe consolidated cash flow statement reports the changes in the cash and cash equivalents recognised in the statement of financial position through cash inflows and outflows in accor-dance with IAS 7.

In this regard, cash flows are broken down into cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. In line with IAS 7.18(b), the cash flow from operating activities is derived from earnings before taxes (EBT) using the indirect method. The cash flow from in-vesting activities and cash flow from financing activities are de-termined based on cash receipts and payments.

The cash and cash equivalents contain the recognised cash and cash equivalents, and therefore also cash in hand and bank bal-ances. Please see section E.8.

As an output of the calculation of the cash flow from operat-ing activities, earnings before taxes (EBT) increased significantly compared to the previous year. Overall, the net cash flow from operating activities increased by EUR k 1,910. Essentially, it was influenced by the higher current surpluses from letting activities.

The cash flow from investing activities mainly comprises cash acquisitions and disposals of properties. Essentially, the signifi-cant increase in cash paid compared to the previous year (EUR k 1,424,264) is based on the cash outflow totalling EUR k 1,530,208 for the acquisition of Aroundtown’s shares. The proceeds from the disposal of properties, which increased by EUR k 42,948 to reach EUR k 67,973 in the reporting year, had the opposite effect, as did the proceeds of EUR k 66,490 from the disposal of subsid-iaries which held properties.

The cash flow from financing activities of EUR k 1,792,150 was due primarily to the issuance of the two bonds in May and Sep-tember 2019 as well as the hybrid bond in September 2019, each with a nominal value of EUR k 600,000. The positive cash flow from financing activities was also affected by the capital increase in June 2019 which generated gross proceeds of EUR k 222,092. The repayment of loans totalling EUR k 237,240 as part of the optimisation of the financing structure had the opposite effect.

In 2019, the payment of a dividend reduced liquidity by EUR k 94,140 (previous year EUR k 84,645).

Financial liabilities developed as follows:

in EUR k31/12/

2018

Cash flows recognised

through profit or loss

Change recog-nised directly

in equity31/12/

2019

Non-current liabilities 1,442,829 1,178,573 –83.389 2,539,013

Current liabilities 136,613 –135.148 81.096 82,561

Total liabilities 1,579,442 1,044,425 –2.293 2,621,574

in EUR k31/12/

2017

Cash flows recognised

through profit or loss

Change recog-nised directly

in equity31/12/

2018

Non-current liabilities 1,516,876 0 –74,047 1,442,829

Current liabilities 24,816 36,802 74,995 136,613

Total liabilities 1,541,692 36,802 948 1,579,442

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 95OTHER INFORMATION

H. OTHER INFORMATION

H.1 DISCLOSURES RELATING TO FINANCIAL INSTRUMENTS

H.1.1 DISCLOSURES RELATING TO FINANCIAL INSTRUMENTS

Explanation of measurement categories and classes

The following table presents the financial assets and liabilities

by measurement category and class. In this context, with regard

to the reconciliation of the statement of financial position, the

non-financial liabilities are accounted for even though they are

not subject to IFRS 7:

31/12/2019 in EUR k

Measu-rement

category in accordance with IFRS 9

Carrying amount as at 31/12/2019

Nominal value

Amortised cost

Fair value through net

profit/loss

No financial instruments

in accor-dance with

IAS 32

Fair valueas at

31/12/2019

Fair value hierarchy

level

Other non-current financial assets (other loans) AC 16,491 0 16,491 0 0 16,491 3

Other non-current financial assets FVTPL 1,607 0 0 1,607 0 1,607 2

Trade receivables AC 10,979 0 10,979 0 0 10,979 3

Other current financial assets AC 16,959 16,959 0 0 0 16,959 1

Cash and cash equivalents AC 523,950 523,950 0 0 0 523,950 1

Total financial assets 569,985 540,909 27,470 1,607 0 569,985

Liabilities due to financial institutions FLaC 1,036,887 0 1,036,887 0 0 1,034,793 2

Corporate bonds FLaC 1,584,687 0 1,584,687 0 0 1,638,194 2

Trade payables FLaC 38,560 0 38,560 0 0 38,560 3

Derivative financial instruments FVTPL 27,307 0 0 27,307 0 27,307 2

Other liabilities FLaC 45,139 0 1,716 0 43,423 45,139 3

Total financial liabilities 2,732,580 0 2,661,850 27,307 43,423 2,783,993

Of which financial assets aggregated by measurement category

AC 568,379 540,909 27,470 0 0 568,379

FVTPL 1,607 0 0 1,607 0 1,607

Of which financial liabilities aggregated by measurement category

FLaC 2,705,273 0 2,661,850 0 43,423 2,756,686

FVTPL 27,307 0 0 27,307 0 27,307

31/12/2018 in EUR k

Measu-rement

category in accordance with IFRS 9

Carrying amount as at 31/12/2018

Nominal value

Amortised cost

Fair value through net

profit/loss

No financial instruments

in accor-dance with

IAS 32

Fair value as at

31/12/2018

Fair value hierarchy

level

Other non-current financial assets (other loans) AC 12,015 0 12,015 0 0 12,015 3

Other non-current financial assets FVTPL 1,650 0 0 1,650 0 1,650 2

Trade receivables AC 14,864 0 14,864 0 0 14,864 3

Other current financial assets AC 1,129 0 1,129 0 0 1,129 3

Cash and cash equivalents AC 153,893 153,893 0 0 0 153,893 1

Total financial assets 183,551 153,893 28,008 1,650 0 183,551

Liabilities due to financial institutions FLaC 1,182,955 0 1,182,955 0 0 1,217,078 2

Corporate bonds FLaC 396,487 0 396,487 0 0 391,256 2

Trade payables FLaC 35,389 0 35,389 0 0 35,389 3

Derivative financial instruments FVTPL 10,254 0 0 10,254 0 10,254 2

Other liabilities FLaC 42,821 0 26,353 0 16,468 42,821 3

Total financial liabilities 1,667,906 0 1,641,184 10,254 16,468 1,696,798

Of which financial assets aggregated by measurement category

AC 181,901 153,893 28,008 0 0 181,901

FVTPL 1,650 0 0 1,650 0 1,650

Of which financial liabilities aggregated by measurement category

FLaC 1,657,652 0 1,641,184 0 16,468 1,686,544

FVTPL 10,254 0 0 10,254 0 10,254

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96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSOTHER INFORMATION

For the most part, the carrying amounts of cash and cash equiv-

alents, trade receivables, other financial assets, trade payables

and other liabilities have short remaining terms, with the ex-

ception of non-controlling interests. The carrying amounts cor-

respond to the approximate fair values as at the reporting date.

H.1.2 NET RESULTS BY MEASUREMENT CATEGORY

In accordance with IFRS 7.20 (a), the net gains and losses from

financial assets or financial liabilities that are measured at fair

value through profit or loss or at amortised cost are to be dis-

closed.

The net results from these financial instruments are as follows:

in EUR k01/01/2019 – 31/12/2019

01.01.2018 – 31.12.2018

Financial assets measured at amortised cost 1,745 266

Financial assets and financial liabilities measured at fair value through profit or loss 18,940 7,904

Financial liabilities measured at amortised cost 37,284 25,536

Total 57,969 33,706

The net result from financial assets measured at amortised cost

comprises net interest from cash, allowances and reversals of

write-downs resulting from the reversal of allowances for rent

receivable and the amortisation of rent receivable. The net inter-

est amounts to EUR k 388 (previous year EUR k 628).

The net result from assets and liabilities measured at fair value

through profit or loss contains the result from the remeasure-

ment of derivative financial instruments at market values.

The net result from financial liabilities measured at amortised

cost essentially comprises interest expenses for ongoing debt

service of EUR k 28,412 (previous year EUR k 23,719) in connec-

tion with loans and bonds as well as expenses for the prema-

ture repayment of loans and interest rate hedges of EUR k 3,753

(previous year EUR k 22).

H.2 PRINCIPLES OF FINANCIAL RISK MANAGEMENT

As part of its business activities, the TLG IMMOBILIEN Group is

exposed to a variety of financial risks. In particular, these are

the interest rate risk, the liquidity risk and the inherent risk of

default in rental agreements and sales. These risks are indepen-

dent types of risk which are under constant, systematic obser-

vation through the existing risk management system. They are

assigned to executives in the various fields of the company who

are responsible for identification, monitoring, reporting, man-

agement and control in connection with the aforementioned

risks. This method ensures a degree of congruence between the

nature of the risk and the field of responsibility. A risk manual –

which is updated continuously – governs the identification, mon-

itoring, reporting, management and control of these and other

corporate risks. Risk management is integrated into Controlling.

Capital management

Capital management at TLG IMMOBILIEN is intended to ensure

the financial resources required for the continuation of the

company and the preservation of liquidity. Furthermore, the

financial policies of the Group are designed to generate income

for the shareholders and allow for the annual distribution of a

dividend. The Group strives to increase its overall value. This

holistic capital management strategy has not changed since the

previous year.

As is standard in the sector, capital management is based on the

Net Loan to Value (LTV) ratio. The Net LTV is the ratio between

net debt and the fair value of the investment property. The net

debt is determined by subtracting cash and cash equivalents

from liabilities due to financial institutions and corporate bonds.

In the current financial year as in the previous years, the Group

aims to continue securing access to debt at reasonable financing

costs whilst not exceeding a reasonable proportion of debt.

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As at 31 December 2019, the debt-to-equity ratio was as follows

compared to the previous year:


Investment property (IAS 40) 4,707,397 4,067,527 639,870 15.7

Advance payments on investment property (IAS 40) 2,218 23 2,195 n/a

Owner-occupied property (IAS 16) 8,119 8,104 15 0.2

Non-current assets classified as held for sale (IFRS 5) 3,018 33,080 –30,062 –90.9

Inventories (IAS 2) 734 737 –3 –0.4


Real estate assets and investment assets 6,302,127 4,109,471 2,192,656 53.4

Interest-bearing liabilities 2,621,574 1,579,442 1,042,132 66.0


Net debt 2,097,624 1,425,549 672,075 47.1

Net Loan to Value (Net LTV) in % 33.3 34.7 –1.4 pp

Net debt plus hybrid bond 2,688,468 1,425,549 1,262,919 88.6

Adjusted Net Loan to Value (Net LTV) in % 42.7 34.7 8.0 pp

In the table above, the assets classified as held for sale only

concern investment property.

The Net LTV in the Group is 33.3% and decreased by 1.4 per-

centage points compared to the previous year. The shares in

Aroundtown SA, also a company which holds properties, are

merged with the real estate assets. The capital management

goals were achieved in the reporting year.

Due to the hybrid bond issued in September, this report also

contains an adjusted Net LTV which factors this financial instru-

ment which is recognised as equity in the consolidated financial

statements into the net debt as liabilities. As at the reporting

date, the adjusted Net LTV was 42.7%.

As such, it was within the long-term ceiling of 45% for the Net

LTV announced most recently in the 2018 annual report.

H.3 DEFAULT RISKS

The risk that a contractual partner – essentially tenants and

purchasers of property – will be unable to meet its contractual

payment obligations, thus causing the TLG IMMOBILIEN Group to

suffer a loss, is known as the risk of default. Credit checks are

carried out in order to control the risks of default.

Default risks exist primarily for trade receivables. The TLG

IMMOBILIEN Group does not consider itself exposed to a sig-

nificant credit risk from any individual contractual partner. The

credit risk is limited by the broad, heterogeneous customer

base. The risks of bad debt are minimised by carefully selecting

contractual partners and professional credit checks. Additionally,

standard credit hedging instruments such as guarantees, fixed

charges, suretyships, letters of comfort, deductions and deposits

are used.

The creditworthiness of contractual partners is also monitored

continuously. If a contractual partner’s creditworthiness should

deteriorate significantly, the company will endeavour to remove

the corresponding items from the statement of financial position

as quickly as possible and not enter into any new positions.

The bank balances of TLG IMMOBILIEN are fully protected against

default risks by the security measures of German banks. TLG

IMMOBILIEN regularly checks its membership in, and the cover-

age of, the protection schemes.

The highest possible default risk is the carrying amount of the

financial assets, not taking into account received securities or

other risk-reducing agreements. No guarantees were issued for

subsidiaries or associated companies.

OTHER INFORMATION

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The following table shows the financial assets which were im-

paired on the reporting date:

31/12/2019 in EUR k Carrying amount before impairment Impairment Residual carrying amount

Trade receivables 13,682 –2,703 10,979

Other financial assets 35,080 –24 35,056

Total 48,762 –2,727 46,035

31/12/2018 in EUR k Carrying amount before impairment Impairment Residual carrying amount


Other financial assets 14,692 –46 14,646

Total 31,468 –1,959 29,510

Collateral exists for the gross trade receivables – essentially rent

deposits of approx. EUR 5.3 m (previous year EUR 4.2 m) – which

can be used to offset outstanding receivables if the legal re-

quirements are met.

The impairments were as follows in the 2019 financial year:

31/12/2019 in EUR k As at 01/01 Contribution Utilisation Reversals

Other change

As at the reporting date

Trade receivables 1,913 2,079 –581 –609 –98 2,703

Other financial assets 46 0 –1 –21 0 24

Total 1,959 2,079 –581 –631 –98 2,727

The impairments were as follows in the same period in the pre-

vious year:

31/12/2018 in EUR k As at 01/01 Contribution Utilisation Reversals

Other change

As at the reporting date

Trade receivables 1,232 1,014 –18 –314 0 1,913

Other financial assets 57 2 0 –13 0 46

Total 1,289 1,016 –18 –327 0 1,959

Additionally, the table below presents the age structure of the

financial assets that were overdue as at the reporting date and

their individual impairment.

Other financial assets

Trade receivables

31/12/2019in EUR k Total Not overdue

Overdue in days

< 90 days 90–180 days > 180 days

Expected credit loss rate in % 0% 2% 1% 36% 60%

Gross carrying amount in EUR k 48,762 35,080 8,142 976 666 3,899

Expected credit loss in EUR k 2,727 24 128 10 239 2,326

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H.4 OFFSETTING OF FINANCIAL ASSETS AND FINANCIAL

LIABILITIES

The following financial assets and financial liabilities are subject

to offsetting:

Financial assetsin EUR k

Gross amount offinancial assets

Gross amount of financial liabilities offset in the

statement of financial position

Net amount recognised in the statement of financial

position under financial assets

31/12/2019


31/12/2018


Financial liabilitiesin EUR k

Gross amount of financialliabilities offset in the

statement of financial positionGross amount of financial assets

Net amount recognised in the statement of financial position

under financial liabilities

31/12/2019

Prepayments received towards operating costs –50,322 51,982 –3,343

31/12/2018

Prepayments received towards operating costs –41,159 42,404 –3,519

The offsetting concerns receivables from tenants for operating

costs which have been offset against the corresponding prepay-

ments by tenants towards operating costs.

H.5 LIQUIDITY RISKS

The risk that a company will be unable to meet its payment

obligations on a contractually agreed date is known as the li-

quidity risk.

The Corporate Finance/Treasury department continuously mon-

itors and plans the liquidity requirements of the Group in order

to ensure its liquidity. Enough cash to meet the obligations of

the Group for a given period of time is always kept available.

Additionally, the Group has a short-term credit line of EUR k 500

which, if necessary, can be utilised. The credit line is unsecured.

The following table contains the contractually agreed (undis-

counted) interest payments and repayments of the primary fi-

nancial liabilities of the TLG IMMOBILIEN Group with a negative

fair value. The maturities are based on the contractually defined

fixed interest rates of the financial liabilities.

31/12/2019 in EUR k Carrying

Maturities

< 1 year 1–5 years > 5 years

Liabilities due to financial institutions 1,036,887 85,679 462,544 587,543

Corporate bonds 1,584,687 16,750 1,062,500 618,000

Derivative financial instruments 27,307 5,941 17,205 2,732

Trade payables 38,560 38,560 0 0

Other liabilities 43,108 17,514 1,218 24,376

Liabilities for leases 2,031 0 457 1,574

Total 2,732,580 164,444 1,543,924 1,234,225

31/12/2018 in EUR k Carrying

Maturities

< 1 year 1–5 years > 5 years

Liabilities due to financial institutions 1,182,955 142,520 500,634 607,106

Corporate bonds 396,487 5,500 22,000 405,500

Derivative financial instruments 10,254 5,923 9,356 –6,818

Trade payables 35,389 35,389 0 0

Other liabilities 42,821 14,313 1,265 27,243

Total 1,667,907 203,645 533,255 1,033,031

OTHER INFORMATION

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All instruments for which payments were contractually agreed

as at the reporting date have been included. Planned figures for

new liabilities in the future are not included. The variable inter-

est payments from financial instruments are determined on the

basis of the last specific interest rates before the reporting date.

Financial liabilities that can be repaid at any time are always

allocated to the earliest repayment date.

The financial liabilities either have fixed interest rates or are

safeguarded by interest rate hedges. The combined volume for

both variants is 99.6% (previous year 100%). The average effec-

tive interest rate is around 1.58% (previous year around 1.90%).

The future prolongation structure for the loans and bonds on the

basis of the current residual debt is as follows:

in EUR kCarrying amount

Nominal value

Up to 1 year

1 – 5 years

More than 5 years

Prolongation structure 2019 2,621,574 2,641,877 82,120 1,378,639 1,181,118

Prolongation structure 2018 1,579,443 1,578,876 124,736 452,731 1,001,409

Some financing contracts provide for financial covenants (essen-

tially concerning the Group’s equity ratio, LTV, interest coverage

ratio, debt service coverage ratio and vacancy and WALT cove-

nants) whereby the bank could exercise a right of termination

without notice if the covenants are not adhered to. The compa-

ny covers the risk of a breached covenant by regularly inspect-

ing the covenants and, if necessary, taking steps to adhere to

the covenants. A breached covenant can also be remedied by

means of unscheduled repayments, for example. No covenants

were breached in 2019.

H.6 MARKET RISKS

Increased interest rates can result in growing financing costs.

The company accounts for this interest rate risk by creating

interest rate hedges for loans with variable interest rates and

by concluding agreements with fixed interest rates and terms

spanning a number of years. The interest rate hedges consist of

interest rate derivatives such as interest rate swaps and floors.

The use of such interest rate derivatives is governed by guide-

lines. Under the guidelines, derivative financial instruments are

only used for the purposes of hedging and never for trading. In

general, there is a hedge for every loan with a variable interest

rate.

The TLG IMMOBILIEN Group is not exposed to any foreign ex-

change risks as its major transactions are carried out in euros.

As at 31 December 2019, the portfolio contained the following

derivative financial instruments whose maturity periods are as

at the reporting date.

Derivative financial instruments in EUR k Fair Value < 1 year

Derivative assets held for trading 1,607 0

of which interest rate swaps 0 0

of which floors 1,607 0

Derivative liabilities held for trading 27,307 0

of which interest rate swaps 27,307 0

As at the reporting date in the previous year, the portfolio con-

tained the following derivative financial instruments:

Derivative financial instrumentsin EUR k Fair Value < 1 year

Derivative assets held for trading 1,650 0

of which interest rate swaps 432 0

of which floors 1,219 0

Derivative liabilities held for trading 10,254 0

of which interest rate swaps 10,254 0

The derivative financial instruments were used as hedging in-

struments under IAS 39 until the end of March 2017. Hedge

accounting was discontinued at the start of the second quarter

of 2017. Ever since, all changes in market values are presented

through the item “Result from the remeasurement of derivative

financial instruments”.

The changes in market value that have been presented as other

comprehensive income and allocated to an equity reserve in

prior periods will be reversed on a pro-rata basis over the re-

maining term of each underlying transaction.

The following table shows the amount recognised directly in

other comprehensive income during the reporting period.

in EUR k 2019 2018

Opening balance as at 01/01 –3,454 –4,285

Reversal from equity into the statement of profit or loss 1,577 831

Closing balance as at 31/12 –1,877 –3,454

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H.7 SENSITIVITIES

Under IFRS 7, interest rate risks are represented by sensitivity

analyses. These analyses determine the impact of a change in

market interest rates on the net interest and exchanges, trading

profit and losses, and on the equity on the reporting date.

The sensitivity analysis also factors in the impacts on equity

and the statement of comprehensive income of TLG IMMOBILIEN

that would result from a simultaneous fluctuation in the euro

yield curve by +/– 50 basis points (previous year +/– 50 basis

points). If the yield curve were to decline by 50 basis points, the

interest rate would fall to 0.0% at the lowest, provided that this

has been contractually agreed. The cash flow effects from fluc-

tuations in the yield curve merely concern the interest income

and expenses for the next reporting period.

Based on the financial instruments held or issued by TLG IMMO-

BILIEN as at the reporting date, a hypothetical change – quanti-

fied by sensitivity analyses – in the interest rates on which each

instrument was based on the reporting date would have had

the following effects (before taxes).

Financial instruments in EUR k

Effects on income

+50 BP –50 BP

31/12/2019

Financial liabilities –3,116 3,116

Interest rate derivatives 18,614 –19,354

Floors –1,115 1,852

Financial instrumentsin EUR k

Effects on income

+50 BP –50 BP

31/12/2018

Financial liabilities –2,926 2,926

Interest rate derivatives 20,502 –20,705

Floors –812 1,555

H.8 NUMBER OF EMPLOYEES

As at 31 December 2019, 158 people were employed by the

Group (132 as at 31/12/2018).

31/12/2019

Average number of

employees in 2019 31/12/2018

Average number of

employees in 2018

Permanent employees 153 139 129 126

Temporary employees 5 5 3 3

Total 158 144 132 129

As in the previous year, the full-time employees are not report-

ed due to the low proportion of part-time employees.

H.9 TOTAL AUDITOR’S FEE

The following fees have been recognised as expenses for the

services rendered by the auditor of the consolidated financial

statements in the financial year:

in EUR k 2019 2018

Audit services 466 561

Other assurance services 194 176

Other services 24 0

Tax consulting services 0 0

Total fee 684 737

The audit services of EUR k 466 comprise the auditor’s services

in connection with the audit of the financial statements and

the audit of the consolidated financial statements of WCM AG

totalling EUR k 191.

The increase in other assurance services essentially resulted

from services of the auditor in connection with the preparation

of various comfort letters for the issuance of bonds.

H.10 IFRS 2 PROGRAMMES

H.10.1 SHARE-BASED PAYMENTS TO EMPLOYEES

In the 2019 financial year, expenses for a share-based payment

component for certain employees were recognised under IFRS.

The grant date fair value of the share-based payments in 2019

is EUR k 330.

With regard to its targets and payment criteria, this remunera-

tion component shares its structure with the long-term incentive

scheme for the Management Board, which is described below.

OTHER INFORMATION

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H.10.2 LTI MANAGEMENT BOARD CONTRACTS

The employment contracts of the members of the Management

Board include a long-term incentive programme for each finan-

cial year from 2018 to 2022.

Each LTI tranche covers a four-year period. Completion of the

defined objectives is determined at the end of the fourth year

by means of a comparison between current progress and the

target.

The amount of LTI remuneration is contingent on the completion

of certain objectives. In this regard, the major objectives are the

improvement of the Net Asset Value and the TLG IMMOBILIEN

AG share price compared to the relevant EPRA Europe Index.

The contracts of the members of the Management Board can-

not be duly terminated. The contract will end if a member of

the Management Board becomes permanently unable to work

during the term of the contract. The member of the Manage-

ment Board will receive 100% of his LTI if he was actively em-

ployed during the calendar year in which the LTI commitment

existed. If the member of the Management Board was not em-

ployed for the full calendar year, the LTI shall be disbursed at a

proportional rate.

The scheme is being treated as share-based payments in a

cash-settled plan in accordance with IFRS 2.

Based on the estimations of the Management Board as to the

completion of performance hurdles, personnel expenses of EUR

k 2,326 were recognised for the LTI of the members of the Man-

agement Board in the 2019 financial year (previous year EUR k

1,446). The provisions formed amount to EUR k 2,823 (previous

year EUR k 497).

The fair value of the 2019 LTI tranche as at the settlement date

was EUR k 429 or EUR k 341 (2018 LTI tranche: EUR k 108) and

was calculated using a recognised option pricing model. See

the disclosures regarding the remuneration of the Management

Board in the remuneration report.

H.11 RELATED PARTIES

Related companies and parties are defined as companies and

persons which have the ability to control the TLG IMMOBILIEN

Group or exercise significant influence over it, or which the TLG

IMMOBILIEN Group controls or exercises significant influence

over.

Accordingly, the members and close relatives of the Manage-

ment and Supervisory Boards of TLG IMMOBILIEN AG and the TLG

IMMOBILIEN Group’s subsidiaries are considered related parties

and companies.

Ouram Holding S.à r.l. and Aroundtown SA also count as related

companies according to IAS 24.9(b)(ii).

Related companies

On 18 November 2019, TLG IMMOBILIEN AG and Aroundtown SA

signed a business combination agreement setting out the basic

principles of the planned transaction. The business combination

agreement governs the structure of the transaction, the con-

ditions of the takeover offer, the support by the Management

Board of TLG IMMOBILIEN AG and other basic principles and

conditions of the transaction. The business combination agree-

ment which serves as the cornerstone of the share acquisition

by means of Aroundtown SA’s takeover offer also addresses the

future organisational structure and proportional membership of

the Management Board. Furthermore, Aroundtown SA makes

a financing commitment to TLG IMMOBILIEN AG in the event

that its creditors or bondholders exercise rights of termination in

accordance with change-of-control clauses. In this case, Around-

town SA shall provide the necessary amount of funds through

shareholder loans or other financial methods at conventional

rates.

TLG IMMOBILIEN AG had concluded loan agreements with its

subsidiaries TLG MVF GmbH and TLG CCF GmbH on 11 June 2019,

each in the amount of EUR k 15,000 with TLG IMMOBILIEN AG

as the lender, which were terminated in December 2019. The

purpose of the loan agreements was to optimise liquidity.

Effective as at 1 March 2018, TLG IMMOBILIEN AG concluded

an agency agreement with its subsidiaries and their direct and

indirect subsidiaries. It undertook to assume and perform all

services necessary to the operation of the companies and the

management of the properties held by the companies in ex-

change for customary remuneration. TLG IMMOBILIEN AG has

taken charge of all operating and management activities of all

of the companies in the TLG IMMOBILIEN Group since that time.

More subsidiaries joined this agency agreement in the 2019

financial year.

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TLG IMMOBILIEN AG and WCM AG concluded a loan agreement

for EUR k 58,845 on 25 June 2019, with TLG IMMOBILIEN AG as

the lender. The loan is payable by 28 June 2026. It will serve to

pay off liabilities to financial institutions on the level of WCM

subsidiaries.

On 24 September 2019, a loan of EUR k 600,000 was agreed be-

tween TLG IMMOBILIEN AG as the borrower and TLG Finance S.à r.l.

as the lender in order to pass on income from the issuance of

subordinated bonds with unlimited terms. The loan is payable

by 23 December 2031.

All outstanding balances with the parent company were agreed

at standard market rates. None of the balances is secured. No

expenses were recognised as irrecoverable or doubtful receiv-

ables with regard to the amounts owed by the parent company

in the current year or in the previous year.

Related parties

No transactions of particular significance took place with related

companies in the 2019 financial year.

The composition of the Management Board has changed since

the previous year. With effect from 3 June 2019, the Supervisory

Board of TLG IMMOBILIEN AG has appointed Mr Barak Bar-Hen as

a member of the Management Board and Chief Executive Officer

for the period until 2 June 2023.

The remuneration paid by TLG IMMOBILIEN AG to the members

of the Management Board was as follows in the 2019 financial

year:

in EUR k 2019 2018

Fixed remuneration 1,178 890

Fringe benefits 239 208

Subtotal of fixed remuneration 1,417 1,098

Short-term variable remuneration (STI) 801 626

Long-term variable remuneration (LTI) 1,199 476

Subtotal of variable remuneration 2,000 1,102

Total remuneration 3,417 2,200

Likewise, the composition of the Supervisory Board changed in

the 2019 financial year.

OTHER INFORMATION

Dr Claus Nolting had stepped down from the Supervisory Board

with effect from 31 December 2018. By judicial decree on 15

February 2019, the local court of Charlottenburg appointed Mr

Jonathan Lurie as a member of the Supervisory Board until the

end of the annual general meeting in 2019. Additionally, the

terms of office of Mr Michael Zahn and Dr Michael Bütter on

the Supervisory Board ended at the end of the annual general

meeting in 2019.

The following members have been appointed to the Super-

visory Board with the following majorities of the share capital

with voting rights in attendance at the general meeting held

on 21 May 2019:

Member %

Klaus Krägel 87.2034

Jonathan Lurie 87.5664

Ran Laufer 81.3253

See the remuneration report, which is part of the report on the

position of the company and the Group, for more disclosures on

the remuneration of the Management Board.

Remuneration paid to previous members of the management

totalled EUR 0.2 m in 2019 (previous year EUR 0.2 m). In 2019,

EUR 3.0 m was placed into reserves for pension obligations to

past members of the management (previous year EUR 2.8 m).

In line with the Articles of Association, all Supervisory Board

remuneration is payable at the end of each financial year. The

remuneration paid pro rata to the members of the Supervisory

Board for the 2019 financial year totalled EUR 0.5 m (previous

year EUR 0.6 m).

In summary, this resulted in the following recognised expens-

es for the remuneration of the Management and Supervisory

Boards in line with IAS 24.17:

in EUR k 2019 2018

Benefits due in the short term 2,868 2,306

Other benefits due in the long term 0 1,794

Share-based payments 2,326 1,446

Total 5,194 5,546

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The Supervisory Board of TLG IMMOBILIEN AG consists of the fol-lowing members:

Sascha Hettrich FRICS (Chairperson of the Supervisory Board) Chairperson since 21/05/2019

Chairperson of the presidential and nomination committee of TLG IMMOBILIEN AG, Berlin since 21/05/2019Member from 01/01/2019 to 21/05/2019

Chairperson of the capital market and acquisitions committee of the Supervisory Board of TLG IMMOBILIEN, Berlin since 21/05/2019

Member of the audit committee of TLG IMMOBILIEN AG, Berlin

Member of the project development committee of TLG IMMOBILIEN, Berlin Chairperson until 21/05/2019

Member of the supervisory board of WCM Beteiligungs- und Grundbesitz AG, Frankfurt/Main

Member of the board of directors, VIVION Investments S.à.r.l., Luxembourg

Member of the board of directors, Golden Capital Partners S.A., Luxembourg

Managing partner of HETTRICH TOMORROW GmbH, Berlin

Member of the Committee on Berlin Property Values

Ran Laufer (Vice-chairperson) Vice-chairperson since 21/05/2019

Member of the project development committee of TLG IMMOBILIEN, Berlin since 21/05/2019

Member of the presidential and nomination committee of TLG IMMOBILIEN AG, Berlin since 21/05/2019

Shareholder/managing director of Panorama Immobilien GmbH, Monheim am Rhein since 2019

CEO of ADO Properties S.A., Berlin July 2019 to December 2019

Member of the board of directors of Aroundtown S.A., Luxembourg since 16/12/2019

Klaus Krägel Member since 21/05/2019

Chairperson of the project development committee of TLG IMMOBILIEN, Berlin since 21/05/2019

CEO of DIM Holding AG, Berlin until 31/01/2020

Managing director of GIV Management GmbH, Berlin until 30/11/2019

Managing director of Golden Route GmbH, Hamburg

Jonathan Lurie Member since 15/02/2019

Member of the audit committee of TLG IMMOBILIEN AG, Berlin since 21/05/2019

Member of the presidential and nomination committee of TLG IMMOBILIEN AG, Berlin since 21/05/2019

Member of the capital market and acquisitions committee of the Supervisory Board of TLG IMMOBILIEN, Berlin since 21/05/2019

Senior adviser, Real Estate, McKinsey & Company, London

Managing partner, Realty Corporation Ltd., London

Member of the supervisory board of Corestate Capital Holdings SA, Luxembourg since April 2019

Helmut Ullrich

Chairperson of the audit committee of the Supervisory Board of TLG IMMOBILIEN AG, Berlin

Member of the capital market and acquisitions committee of the Supervisory Board of TLG IMMOBILIEN, Berlin

Member of the project development committee of TLG IMMOBILIEN, Berlin until 21/05/2019

Chairperson of the supervisory board of WCM Beteiligungs- und Grundbesitz AG, Frankfurt/Main

Michael Zahn Member and Chairperson until 21/05/2019

Chairperson of the presidential and nomination committee of the Supervisory Board of TLG IMMOBILIEN AG, Berlin until 21/05/2019

Chairperson of the capital market and acquisitions committee of the Supervisory Board of TLG IMMOBILIEN, Berlin until 21/05/2019

Member of the audit committee, TLG IMMOBILIEN AG, Berlin until 21/05/2019

CEO of Deutsche Wohnen SE, Berlin

Member of the supervisory board of Scout24 AG, Munich until June 2019

Chairperson of the advisory board of G+D Gesellschaft für Energiemanagement GmbH, Magdeburg

Chairperson of the supervisory board of Funk Schadensmanagement GmbH, Berlin

Member of the advisory board of DZ Bank AG, Frankfurt/Main

Member of the advisory board of Füchse Berlin Handball GmbH, Berlin

Member of the real estate advisory board of GETEC Wärme & Effizienz AG, Magdeburg

Dr. Michael Bütter Member until 21/05/2019Vice-chairperson until 21/05/2019

Member of the presidential and nomination committee of TLG IMMOBILIEN AG, Berlin until 21/05/2019

Member of the capital market and acquisitions committee of the Supervisory Board of TLG IMMOBILIEN, Berlin until 21/05/2019

Member of the project development committee of TLG IMMOBILIEN, Berlin until 21/05/2019

Member of the board of directors, ADO Properties S.A., Luxembourg

Chairperson of the audit committee, ADO Properties S.A., Luxembourg

Member of the investment and finance committee, ADO Properties S.A., Luxembourg

Member and vice-chairperson of the supervisory board of Assmann Beraten + Planen AG, Berlin

Stefan E. Kowski Member until 15/05/2019

Partner at Novalpina Capital LLP, London

OTHER INFORMATION

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H.12 OTHER FINANCIAL OBLIGATIONS

As at the reporting rate, the other financial obligations of the

Group consisted of EUR k 2,395 (previous year EUR k 1,654) in

future payments (net) resulting from operating leases and a

commitment of EUR k 35,543 (previous year EUR k 7,352) for

investment property and property, plant and equipment.

The company has diverse service contracts for IT services,

building cleaning, reception staff and security services with a

payment obligation of EUR k 2,275 (previous year EUR k 1,289),

as well as leases for vehicles from its fleet with a payment

obligation of EUR k 111 (previous year EUR k 202). There are also

rental agreements in connection with the leasing of properties

with a payment obligation of EUR k 9 (previous year EUR k 163).

These operating leases serve the company’s ongoing business

operations and are advantageous in that intensive investment

measures and the corresponding outflow of cash are not neces-

sary. The operating leases are not considered risky.

The expenses for minimum lease instalments in the 2019 finan-

cial year totalled EUR k 119 (previous year EUR k 211).

OTHER INFORMATION

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H.13 SHAREHOLDING LIST

As at 31 December 2019, TLG IMMOBILIEN holds interest in the

following fully consolidated companies:

Name and registered offices of the company ShareholdingEquity as at 31/12/2019

in EUR k

Results of the 2019 financial year

in EUR kShareholding Direct/indirect

1 Hotel de Saxe an der Frauenkirche GmbH, Dresden2,3 100.00% 22,200 0 Direct

2 River Berlin Immobilien GmbH & Co. KG, Berlin1 94.90% 2,025 78 Indirect

3 River Bonn Immobilien GmbH & Co. KG, Berlin1 94.90% 2,289 133 Indirect

4 River Düsseldorf Immobilien GmbH & Co. KG, Berlin1 94.90% 1,160 –34 Indirect

5 River Frankfurt Immobilien GmbH & Co. KG, Berlin1 94.90% 13,013 –1,259 Indirect

6 TLG Reserve1 GmbH & Co. KG, Berlin1 100.00% 0 –1 Direct

7 TLG BES GmbH, Berlin2,4 100.00% n/a n/a Direct

8 TLG Beteiligungsgesellschaft mbH, Berlin2 100.00% 23 –2 Direct

9 TLG BN 1 GmbH & Co. KG, Berlin1

(from 01/01/2020 TLG BN 1 GmbH, Berlin) 100.00% 88,651 1,501 Direct

10 TLG CCF GmbH, Berlin2,3 100.00% 94,025 0 Direct

11 TLG EH1 GmbH, Berlin2,3 94.90% 17,550 0 Direct

12 TLG EH2 GmbH, Berlin2,3 94.90% 28,834 234 Direct

13 TLG FAB GmbH, Berlin2,3 94.90% 27,896 0 Direct

14 TLG Finance S.à r.l., Luxemburg 100.00% 2,806 –94 Direct

15 TLG Fixtures GmbH, Berlin2,3 100.00% 359 0 Direct

16 TLG HH1 GmbH & Co. KG, Berlin1,4

(from 01/01/2020 TLG HH 1 GmbH, Berlin) 100.00% 58,521 940 Direct

17 TLG MVF GmbH, Berlin2,3 100.00% 73,025 0 Direct

18 TLG Sachsen Forum GmbH, Berlin2,3 100.00% 24,104 0 Direct

19 Triangel Frankfurt Immobilien GmbH & Co. KG, Berlin1 94.90% 12,983 –723 Indirect

20 WCM Besitzgesellschaft mbH & Co. KG, Berlin1

(from 01/01/2020 WCM Besitzgesellschaft GmbH, Berlin) 100.00% 25 56 Indirect

21 WCM Beteiligungs- und Grundbesitz Aktiengesellschaft, Frankfurt/Main 92.53% 252,121 7,990 Direct

22 WCM Beteiligungsgesellschaft mbH & Co. KG, Berlin1 100.00% –8,441 –6,002 Indirect

23 WCM Fixtures GmbH, Berlin2 100.00% 53 –35 Indirect

24 WCM Handelsmärkte I GmbH, Berlin2 94.90% 683 100 Indirect

25 WCM Handelsmärkte II GmbH, Berlin2 94.90% 1,178 321 Indirect

26 WCM Handelsmärkte IV GmbH & Co. KG, Berlin1 94.90% 17,859 156 Indirect

27 WCM Handelsmärkte IX GmbH & Co. KG, Berlin1 94.80% 6,311 10 Indirect

28 WCM Handelsmärkte VII GmbH & Co. KG, Berlin1 94.90% 5,924 –18 Indirect

29 WCM Handelsmärkte X GmbH & Co. KG, Berlin1 94.80% 5,395 –15 Indirect

30 WCM Handelsmärkte XI GmbH & Co. KG, Berlin1 94.80% 3,494 –924 Indirect

31 WCM Handelsmärkte XII GmbH & Co. KG, Berlin1 94.80% 2,014 10 Indirect

32 WCM Handelsmärkte XIII GmbH & Co. KG, Berlin1 94.00% 2,203 356 Indirect

33 WCM Handelsmärkte XIV GmbH & Co. KG, Berlin1 94.00% 4,989 –93 Indirect

34 WCM Handelsmärkte XV GmbH & Co. KG, Berlin1 94.00% 5,544 –18 Indirect

35 WCM Handelsmärkte XVI GmbH & Co. KG, Berlin1 94.00% 1,207 –59 Indirect

36 WCM Handelsmärkte XVII GmbH, Berlin2 94.90% 1,174 –253 Indirect

37 WCM Office I GmbH, Berlin2 94.90% 3,832 –262 Indirect

38 WCM Office II GmbH & Co. KG, Berlin1 94.90% 2,303 –502 Indirect

39 WCM Office III GmbH & Co. KG, Berlin1 94.90% 70 –625 Indirect

40 WCM Office IV GmbH & Co. KG, Berlin1 94.90% 1,870 –236 Indirect

41 WCM Vermögensverwaltung GmbH & Co. KG, Berlin1 100.00% 24,077 –9,864 Indirect

42 WCM Verwaltungs GmbH, Berlin2 100.00% 72 –43 Indirect

43 WCM Verwaltungs I GmbH, Berlin2 100.00% 165 40 Indirect

44 WCM Verwaltungs II GmbH, Berlin2 100.00% 63 –15 Indirect

45 WCM Verwaltungs III GmbH & Co. KG, Berlin1 100.00% –2,779 –529 Indirect

46 WCM Verwaltungs IV GmbH & Co. KG, Berlin1 100.00% –787 –441 Indirect

1 According to Sec. 264b HGB, companies are exempted from their obligation to prepare financial statements.2 According to Sec. 264 (3) HGB, companies are exempted from their obligation to prepare financial statements.3 Profit transfer agreement with TLG IMMOBILIEN AG4 Different financial year (30/06). The figures apply to 30 June 2019.

Compared to the previous year, the number of fully consolidated

companies decreased by a total of eight companies. For more

details, see section C.2.

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The financial statements have not yet been ratified in each case.

The equity and net income are based on German GAAP.

Associated companies which have been taken into account us-

ing the equity method in the consolidated financial statements

as at 31 December 2019:

Name and registered offices of the company Shareholding

Equity as at 31/12/201

in EUR k

Results of the 2019 financial year

in EUR kShareholdingdirect/indirect

Aroundtown SA, Luxembourg 15,03% 4,324,522 130,516 direct

This is the published financial statements according to IFRS.

H.14 SUBSEQUENT EVENTS

Merger with Aroundtown SA

In September 2019, in connection with the staggered acquisition

of a parcel of 15% of the shares of Aroundtown SA, Luxembourg,

TLG IMMOBILIEN AG announced that both companies were striv-

ing for negotiations regarding a merger. Consequently, both par-

ties signed a business combination agreement on 18 November

2019. On the same day, Aroundtown SA announced its inten-

tion to submit a public takeover offer to the shareholders of TLG

IMMOBILIEN in the form of a share swap.

The offer was published on 18 December 2019; the first deadline

for the share swap by the shareholders of TLG IMMOBILIEN AG

ended on 21 January 2020 with an acceptance rate of 59.37%.

The subsequent further acceptance deadline ended on 7 February

2020.

The total number of shares for which the takeover offer was

accepted by the end of the second deadline, plus the shares

already held directly or indirectly by the bidder on that date,

totalled 87,168,686 shares. As at the reporting date, this was

equivalent to 77.76% of the share capital and voting rights.

OTHER INFORMATION

On 19 February 2020, the shares offered by Aroundtown SA as

part of the takeover offer were transferred to the shareholders

of TLG IMMOBILIEN who had submitted their shares as part of

the share swap.

Due to the completion of the share swap and the resulting reduc-

tion in the proportion of the free float, the shares were removed

from the SDAX upon the closure of the market on 18 February

2020. On 19 February 2020, Aroundtown SA gained control over

TLG IMMOBILIEN AG and its subsidiaries.

As part of the merger, Aroundtown SA increased its share

capital on 19 February 2020 by means of a capital increase in

exchange for contributions in kind, excluding the subscription

rights of shareholders, in which 312,688,188 shares were issued.

Consequently, TLG IMMOBILIEN AG’s stake in the share capital

and in the voting rights of Aroundtown SA has decreased to

around 12%.

Change of Control

The change of control activates the change-of-control clauses in

credit agreements and bond conditions which, in the event of

a change of majority, grant the lending banks and bondholders

extraordinary rights of termination under certain circumstances.

As at 31 December 2019, this concerned a total financial

volume of around EUR 1.4 bn, of which around EUR 400 m was

attributable to bonds and around EUR 990 m was attributable

to bank loans. Some of the banks had already approved the

planned merger and change of control in advance and had

waived their rights of termination. If the change of control

should result in a need to refinance, Aroundtown has committed

to cover it with shareholder loans and other financial measures.

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As at 27 March 2020, written commitments have been obtained

from banks for the entire credit volume of the Group, some of

which are tied to specific conditions and duties of cooperation.

TLG IMMOBILIEN AG does not expect to make use of Aroundtown

SA’s financing commitment in connection with its bank loans.

On the other hand, extraordinary rights of termination exist

for bonds worth EUR 400 m until 27 April 2020. In light of the

recent development of the bond price, it is likely that some of

the bond holders will exercise their rights of termination. The

liquidity support agreed in the business combination agreement

with Aroundtown will be available to the company if this should

happen. Additionally, TLG IMMOBILIEN holds a considerable

amount of cash and can continue to obtain financing via the

bond market.

Due to a sufficient volume of hidden reserves, the change of

control will not bring about a forfeiture of TLG IMMOBILIEN AG‘s

existing loss carryforwards; the partial forfeiture of loss carry-

forwards at WCM will not affect the recognised deferred taxes.

Property transactions

Under the purchase agreement dated 5 February 2020, three

commercial properties were acquired for a total investment of

EUR 47 m. For this purpose, three limited liability companies

were established in 2020 with TLG IMMOBILIEN AG as their only

shareholder. The transfer of benefits and encumbrances for an

office building in Berlin which was acquired on 10 December

2019 for a total investment of around EUR 28 m took place on

1 February 2020. The transfer of benefits and encumbrances for

the property “Geo-Park Freiberg”, which was disposed of in 2019

took place on 1 March 2020.

Corona crisis

Infections with the so-called coronavirus, which has been

spreading since end of 2019, are increasingly affecting public

life and economies in Germany, Europe and numerous other

countries.

Stock exchanges all over the world crashed in March 2020 due

to the crisis. This development also hit the market capitalisation

of TLG IMMOBILIEN AG and Aroundtown SA. TLG IMMOBILIEN’s

market value, reflected by its share price, fell below equity

as reported in its statement of financial position as at

31 December 2019. This could be considered an indicator for a

potential impairment of the values of TLG IMMOBILIEN’s non-

current assets. Investment property, being the key element

of TLG IMMOBILIEN’s assets, was measured at fair value as at

31 December 2019; insofar, the lower share price is not

conclusive for the value of the investment property.

The assessment of the intrinsic value of the investment in

Aroundtown, which also mostly holds investment property, is

consistently based on the EPRA NAV which is considered the

relevant indicator. At approx. EUR 8.70 by 31 December 2019, the

EPRA NAV per Aroundtown share exceeds the carrying amount

in TLG IMMOBILIEN’s books of EUR 8.60 per share. Therefore,

the Management Board does not view the volatile share price

development as an indication for a sustained impairment of the

shares and has therefore not recognised an impairment loss.

At the moment, it is increasingly apparent that the coronavirus

pandemic will have a significant negative effect on the German

economy, at least temporarily. It is currently too early to say

whether or to what extent these negative developments will

continue beyond 2020. Despite the coronavirus pandemic, TLG

IMMOBILIEN does not expect the property market to suffer any

significant negative effects in the long term. As such, property

values are expected to remain stable.

OTHER INFORMATION

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 109OTHER INFORMATION

If the coronavirus pandemic does cause the German economy

and property market to suffer a long-term downturn, this could

cause the market values of properties in TLG IMMOBILIEN’s

portfolio to decrease. The potential effects of changes to market

conditions on the value of the property portfolio are presented

in a sensitivity analysis in section E.1 of the notes.

The rental business and liquidity of TLG IMMOBILIEN are

predominantly exposed to risks from hotel properties as well

as properties which are occupied by tenants operating in the

leisure industry or used for gastronomy or non-food retail.

As at 31 December 2019, the annualised in-place rent from

tenants in these sectors made up approximately 25% of the

total annualised in-place rent, which means that bad debt from

these properties is not expected to result in liquidity shortages

over a limited period of time. Tenants of TLG IMMOBILIEN’s hotel

properties are mostly large and well-known hotel chains which

can be expected to overcome the crisis’ financial effects. As at

the reporting date, almost half of the annualised in-place rent

was attributable to office rentals.

Furthermore, no indications of subsequent events in the sense

of IAS 10 have become known.

H.15 DECLARATION OF COMPLIANCE IN ACCORDANCE WITH SEC.

161 AKTG

The Management and Supervisory Boards have fulfilled the rec-

ommendations of the German Corporate Governance Code as

set out in the corporate governance report. The declaration of

compliance will be made available to the shareholders when

the annual report for 2019 is published in the Investor Rela-

tions section of the company’s website www.tlg.eu as well as

at www.ir.wcm.de/en.


Barak Bar-Hen Gerald Klinck Jürgen Overath

Chief Executive Chief Financial Chief Operating

Officer (CEO) Officer (CFO) Officer (COO)

http://www.tlg.eu

http://www.ir.wcm.de/en

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110 INDEPENDENT AUDITOR’S REPORT

TO TLG IMMOBILIEN AG

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS AND OF THE REPORT ON THE POSITION OF THE COMPANY AND THE GROUP

OPINIONS

We have audited the consolidated financial statements of TLG IMMOBILIEN AG, Berlin, and its subsidiaries

(the Group), which comprise the consolidated statement of comprehensive income for the fiscal year from

1 January to 31 December 2019, the consolidated statement of financial position as at 31 December 2019

and the consolidated statement of cash flows and the consolidated statement of changes in equity for the

fiscal year from 1 January to 31 December 2019, and notes to the consolidated financial statements, including

a summary of significant accounting policies. In addition, we have audited the report on the position of the

Company and the Group of TLG IMMOBILIEN AG, for the fiscal year from 1 January to 31 December 2019. In

accordance with German legal requirements, we have not audited the content of the responsibility statement

included in the “Responsibility statement required by Sec. 264 (2) Sentence 3 HGB, Sec. 289 (1) Sentence 5

HGB, Sec. 315 (1) Sentence 5 HGB” section of the report on the position of the Company and the Group or

the declaration on corporate governance included in the “Corporate governance” section of the report on the

position of the Company and the Group.

In our opinion, on the basis of the knowledge obtained in the audit,

the accompanying consolidated financial statements comply, in all material respects, with the IFRSs as

adopted by the EU, and the additional requirements of German commercial law pursuant to Sec. 315e (1)

HGB [“Handelsgesetzbuch”: German Commercial Code] and, in compliance with these requirements, give

a true and fair view of the assets, liabilities and financial position of the Group as at 31 December 2019

and of its financial performance for the fiscal year from 1 January to 31 December 2019, and

the accompanying report on the position of the Company and the Group as a whole provides an appropriate

view of the Group’s position. In all material respects, this report on the position of the Company and the

Group is consistent with the consolidated financial statements, complies with German legal requirements

and appropriately presents the opportunities and risks of future development. Our opinion on the report

on the position of the Company and the Group does not cover the content of the responsibility statement

included in the “Responsibility statement required by Sec. 264 (2) Sentence 3 HGB, Sec. 289 (1) Sentence 5

HGB, Sec. 315 (1) Sentence 5 HGB” section of the report on the position of the Company and the Group or

the declaration on corporate governance included in the “Corporate governance” section of the report on

the position of the Company and the Group.

Pursuant to Sec. 322 (3) Sentence 1 HGB, we declare that our audit has not led to any reservations relating

to the legal compliance of the consolidated financial statements and of the report on the position of the

Company and the Group.

INDEPENDENT AUDITOR’S REPORT

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INDEPENDENT AUDITOR’S REPORT 111

BASIS FOR THE OPINIONS

We conducted our audit of the consolidated financial statements and of the report on the position of the

Company and the Group in accordance with Sec. 317 HGB and the EU Audit Regulation (No 537/2014, referred

to subsequently as “EU Audit Regulation”) and in compliance with German Generally Accepted Standards for

Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in

Germany] (IDW). Our responsibilities under those requirements and principles are further described in the

“Auditor’s responsibilities for the audit of the consolidated financial statements and of the report on the

position of the Company and the Group” section of our auditor’s report. We are independent of the group

entities in accordance with the requirements of European law and German commercial and professional law,

and we have fulfilled our other German professional responsibilities in accordance with these requirements.

In addition, in accordance with Art. 10 (2) f) of the EU Audit Regulation, we declare that we have not provided

non-audit services prohibited under Art. 5 (1) of the EU Audit Regulation. We believe that the audit evidence

we have obtained is sufficient and appropriate to provide a basis for our opinions on the consolidated financial

statements and on the report on the position of the Company and the Group.

KEY AUDIT MATTERS IN THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Key audit matters are those matters that, in our professional judgment, were of most significance in our

audit of the consolidated financial statements for the fiscal year from 1 January to 31 December 2019. These

matters were addressed in the context of our audit of the consolidated financial statements as a whole, and

in forming our opinion thereon; we do not provide a separate opinion on these matters.

Below, we describe what we consider to be the key audit matters:

1. MEASUREMENT OF INVESTMENT PROPERTY

Reasons why the matter was determined to be a key audit matter

The measurement of investment property, which is of material significance for the Group’s assets and

liabilities, involves the use of numerous valuation inputs requiring considerable judgments and assumptions

by the management board. Fair values are generally determined on the basis of the highest and best use of

the property. The highest and best use of the property is determined on the assumption that it is technically

possible, legally permissible and financially feasible. Additional assumptions are made, in particular, about

the future development of realizable rents, the future development of the vacancy rate, the discount and

capitalization rates and future repairs and investments. These assumptions entail significant uncertainty.

In light of the large number of properties, the complexity of the valuation methods and the assumptions

requiring the use of judgment by the executive directors, we consider the measurement of investment

property to be a key audit matter.

Auditor’s response

We assessed and tested the process and internal controls in relation to the correctness of the input data (such

as rental space, term of rental agreement, agreed current rent, rent adjustment clause, relevant repairs and

investments) used to measure investment property.

In light of the real estate-specific assumptions to be made, we included internal real estate experts (MRICS –

Professional Member of the Royal Institution of Chartered Surveyors) in the audit team.

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For a sample, we obtained an understanding of and assessed the method used to value properties by

reference to valuation methods customary in the industry. Together with our internal real estate experts,

we then questioned the Company’s external expert about the valuation model and the assumptions (such

as realizable rents, vacancy rate, discount and capitalization rates and relevant repairs and investments). We

also assessed the qualifications and objectivity of the external expert and the suitability of that work as audit

evidence for the measurement of investment property.

As part of our procedures, we reconciled a sample of the agreed rents which were available to the expert

for the valuation with the underlying rental agreements. We also compared the significant assumptions

concerning market rents and the capitalization and discount rates for real estate with the information

available to us from external databases. With regards to properties whose fair value was measured based

on the expectation that they would be used in a manner that differs from their current use, we assessed

the assumption that such different use is technically possible, legally permissible and financially feasible, in

addition to the valuation performed by the external expert.

In addition, we performed analytical procedures relating to the change in the market values of each property

for a sample of properties, analyzing whether the development of the value drivers (e. g., annual basic

rent, useable space, vacancy rate, discount and capitalization rates, gross multiplier) is consistent with the

development of the market value of the respective property.

Our audit procedures did not lead to any reservations relating to the measurement of investment property.

Reference to related disclosures

Please refer to the information provided by the management board on investment property in the notes to

the consolidated financial statements (section E.1 “Investment property”) and in the report on the position of

the Company and the Group (section 2.2 “Course of business”).

2. RECOGNITION OF THE EQUITY INVESTMENT IN AROUNDTOWN SA

Reasons why the matter was determined to be a key audit matter

The equity investment in Aroundtown SA, Luxembourg, acquired in the fiscal year 2019, is a material asset of

TLG IMMOBILIEN AG and has an impact on the assets, liabilities, financial position and financial performance

of TLG IMMOBILIEN AG as it is accounted for using the equity method.

The assessment whether the equity investment in Aroundtown SA, Luxembourg, qualifies as an associate

which must be accounted for using the equity method in the consolidated financial statements due to the

existence of significant influence is of key importance with respect to the Group’s assets, liabilities and

financial performance. This assessment involves considering the indicators for the existence of significant

influence and therefore includes an element of judgment.

The assessment of the executive directors of TLG IMMOBILIEN AG of indications that the shares in Aroundtown

SA accounted for using the equity method may be impaired as of 31 December 2019 is subject to judgment.

In light of the use of judgment made by the executive directors and the resulting effects on the consolidated

financial statements of TLG IMMOBILIEN AG, we consider the recognition of the equity investment in

Aroundtown SA to be a key audit matter.

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Auditor’s response

On the basis of contracts, the correspondence available to us, our inquiries of the external legal advisors and

the resolutions adopted at the general meeting of Aroundtown SA, we assessed whether TLG IMMOBILIEN AG

has the possibility to exert significant influence on Aroundtown SA considering its interest of 15.03% (i. e., of

less than 20% of Aroundtown SA’s capital stock).

Furthermore, we analyzed the recognition of the equity investment in Aroundtown SA to establish whether

it was correctly recognized initially at cost in accordance with IAS 28.10. In this context, we assessed the

amount of costs by reference to contracts, payment receipts and invoices. In accordance with IAS 28.35,

the portion of Aroundtown SA’s earnings attributed to TLG IMMOBILIEN AG for the period from 1 September

to 31 December 2019 must be determined using consistent accounting policies. We reviewed the publicly

available quarterly financial statements from the year 2019, Aroundtown SA’s audited consolidated financial

statements as of 31 December 2018 and the relevant parts of the prospectus for Aroundtown SA’s public

takeover offer for the acquisition of the shares of TLG IMMOBILIEN AG of 17 December 2019 and interviewed

the management of Aroundtown SA about the accounting policies to identify any potential recognition and

measurement differences.

We analyzed the changes in the carrying amount of the Group’s share in the net assets of the associate from

the acquisition date to 31 December 2019 on the basis of the audited consolidated financial statements of

Aroundtown SA as at 31 December 2019 and the rolled forward carrying amount of TLG IMMOBILIEN AG.

To evaluate the executive directors’ assessment of the underlying value of the equity investment in

Aroundtown SA, we initially examined the underlying process and its suitability for assessing the underlying

value of the equity investment. We also appraised the executive directors’ assessment of whether objective

evidence of impairment as defined by IAS 28.41a and IAS 28.41c existed as a result of a loss event.

Our procedures did not lead to any reservations relating to the accounting for the equity investment in

Aroundtown SA.

Reference to related disclosures

Please refer to the information provided by the management board on the recognition of the equity

investment in Aroundtown SA in the notes to the consolidated financial statements (sections C.2 “Methods of

consolidation,” D.4 “Impairments of non-financial assets,” D.23 “Major discretionary decisions and estimates,”

E.3 “Shares in companies measured at equity,“ H.13 “Shareholding list” and H.14 “Subsequent events”).

Other information

The supervisory board is responsible for the report of the supervisory board pursuant to Sec. 171 (2) AktG

[“Aktiengesetz”: German Stock Corporation Act] and the supervisory board’s declaration of compliance with

the German Corporate Governance Code pursuant to Sec. 161 AktG. In all other respects, the executive

directors are responsible for the other information.

The other information comprises the declaration on corporate governance included in the “Corporate

governance” section pursuant to Sec. 289f (2) in conjunction with Sec. 315d HGB and the declaration of

compliance with the Corporate Governance Code in accordance with Sec. 161 AktG in the report on the

position of the Company and the Group as well as the responsibility statement included in the section entitled

“Responsibility statement required by Sec. 264 (2) Sentence 3 HGB, Sec. 289 (1) Sentence 5 HGB, Sec. 315 (1)

Sentence 5 HGB” of the report on the position of the Company and the Group.

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The other information also includes the other elements of the annual report, except for the audited consolidated

financial statements and the report on the position of the Company and the Group and our auditor’s report, in

particular the sections “Report of the supervisory board” and “Corporate governance report and declaration

on corporate governance.”

We obtained a version of this other information before issuing our auditor’s report.

Our opinions on the consolidated financial statements and on the report on the position of the Company and

the Group do not cover the other information, and consequently we do not express an opinion or any other

form of assurance conclusion thereon.

In connection with our audit, our responsibility is to read the other information and, in so doing, to consider

whether the other information

is materially inconsistent with the consolidated financial statements, with the report on the position of

the Company and the Group or our knowledge obtained in the audit, or

otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other

information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the executive directors and the supervisory board for the consolidated

financial statements and the report on the position of the Company and the Group

The executive directors are responsible for the preparation of the consolidated financial statements that

comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German

commercial law pursuant to Sec. 315e (1) HGB, and that the consolidated financial statements, in compliance

with these requirements, give a true and fair view of the assets, liabilities, financial position and financial

performance of the Group. In addition, the executive directors are responsible for such internal control as they

have determined necessary to enable the preparation of consolidated financial statements that are free from

material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the executive directors are responsible for assessing the

Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable,

matters related to going concern. In addition, they are responsible for financial reporting based on the going

concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there

is no realistic alternative but to do so.

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Furthermore, the executive directors are responsible for the preparation of the report on the position of

the Company and the Group that, as a whole, provides an appropriate view of the Group’s position and is,

in all material respects, consistent with the consolidated financial statements, complies with German legal

requirements, and appropriately presents the opportunities and risks of future development. In addition, the

executive directors are responsible for such arrangements and measures (systems) as they have considered

necessary to enable the preparation of a report on the position of the Company and the Group that is in

accordance with the German legal requirements, and to be able to provide sufficient appropriate evidence for

the assertions in the report on the position of the Company and the Group.

The supervisory board is responsible for overseeing the Group’s financial reporting process for the preparation

of the consolidated financial statements and of the report on the position of the Company and the Group.

Auditor’s responsibilities for the audit of the consolidated financial statements and of the report on

the position of the Company and the Group

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as

a whole are free from material misstatement, whether due to fraud or error, and whether the report on the

position of the Company and the Group as a whole provides an appropriate view of the Group’s position and,

in all material respects, is consistent with the consolidated financial statements and the knowledge obtained

in the audit, complies with the German legal requirements and appropriately presents the opportunities

and risks of future development, as well as to issue an auditor’s report that includes our opinions on the

consolidated financial statements and on the report on the position of the Company and the Group.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance

with Sec. 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards

for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a

material misstatement. Misstatements can arise from fraud or error and are considered material if, individually

or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken

on the basis of these consolidated financial statements and this report on the position of the Company and

the Group.

We exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements and of the

report on the position of the Company and the Group, whether due to fraud or error, design and perform

audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to

provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud

is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,

misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit of the consolidated financial statements

and of arrangements and measures (systems) relevant to the audit of the report on the position of the

Company and the Group in order to design audit procedures that are appropriate in the circumstances, but

not for the purpose of expressing an opinion on the effectiveness of these systems.

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Evaluate the appropriateness of accounting policies used by the executive directors and the reasonableness

of estimates made by the executive directors and related disclosures.

Conclude on the appropriateness of the executive directors’ use of the going concern basis of accounting

and, based on the audit evidence obtained, whether a material uncertainty exists related to events or

conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we

conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to

the related disclosures in the consolidated financial statements and in the report on the position of the

Company and the Group or, if such disclosures are inadequate, to modify our respective opinions. Our

conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,

future events or conditions may cause the Group to cease to be able to continue as a going concern.

Evaluate the overall presentation, structure and content of the consolidated financial statements, including

the disclosures, and whether the consolidated financial statements present the underlying transactions

and events in a manner that the consolidated financial statements give a true and fair view of the assets,

liabilities, financial position and financial performance of the Group in compliance with IFRSs as adopted

by the EU and the additional requirements of German commercial law pursuant to Sec. 315e (1) HGB.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business

activities within the Group to express opinions on the consolidated financial statements and on the report

on the position of the Company and the Group. We are responsible for the direction, supervision and

performance of the group audit. We remain solely responsible for our audit opinions.

Evaluate the consistency of the report on the position of the Company and the Group with the consolidated

financial statements, its conformity with [German] law, and the view of the Group’s position it provides.

Perform audit procedures on the prospective information presented by the executive directors in the

report on the position of the Company and the Group. On the basis of sufficient appropriate audit evidence

we evaluate, in particular, the significant assumptions used by the executive directors as a basis for

the prospective information, and evaluate the proper derivation of the prospective information from

these assumptions. We do not express a separate opinion on the prospective information and on the

assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially

from the prospective information.

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We communicate with those charged with governance regarding, among other matters, the planned scope

and timing of the audit and significant audit findings, including any significant deficiencies in internal control

that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with the relevant

independence requirements, and communicate with them all relationships and other matters that may

reasonably be thought to bear on our independence and where applicable, the related safeguards.

From the matters communicated with those charged with governance, we determine those matters that

were of most significance in the audit of the consolidated financial statements of the current period and are

therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation

precludes public disclosure about the matter.

OTHER LEGAL AND REGULATORY REQUIREMENTS

Further information pursuant to Art. 10 of the EU Audit Regulation

We were elected as group auditor by the annual general meeting held on 21 May 2019 and were engaged

by the supervisory board on 18 October 2019. We served as the auditor of TLG IMMOBILIEN GmbH from fiscal

year 1999 to 2013. Since fiscal year 2014 we serve as the auditor of TLG IMMOBILIEN AG without interruption.

We declare that the opinions expressed in this auditor’s report are consistent with the additional report to the

audit committee pursuant to Art. 11 of the EU Audit Regulation (long-form audit report).

German Public Auditor responsible for the engagement

The German Public Auditor responsible for the engagement is Stefanie Kreninger.


Ernst & Young GmbH

Wirtschaftsprüfungsgesellschaft

Kreninger Pilawa

Auditor Auditor

[German Public Auditor] [German Public Auditor]

FINANCIAL CALENDAR

12 MAY 2020

Publication quarterly financial report Q1/2020

26 MAY 2020

Annual general meeting

12 AUGUST 2020


12 NOVEMBER 2020


CONTACT

PUBLISHER

TLG IMMOBILIEN AG

Hausvogteiplatz 12

10117 Berlin, Germany

Investor Relations

Oliver Sturhahn

Phone: +49 30 2470 6089

Fax: +49 30 2470 7446

Email: [email protected]

Internet: www.tlg.eu

IMPRINT

CONCEPT, PROJECT MANAGEMENT AND DESIGN

GFD – Gesellschaft für Finanzkommunikation mbH,

Frankfurt/Main, Germany

www.gfd-finanzkommunikation.de

Ligaturas – Reportdesign, Hamburg, Germany

www.ligaturas.de

118 PUBLISHING DETAILS

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http://www.tlg.eu

http://www.gfd-finanzkommunikation.de

http://www.ligaturas.de

The greatest of care was taken during the preparation of this report. Nevertheless, rounding, transmission, typographical and

printing errors cannot be ruled out.

This is a translation of the original German text. In cases of doubt, the German version takes precedence.

This publication contains forward looking statements based on current opinions and assumptions of the management of TLG

IMMOBILIEN AG made to the best of their knowledge. Forward looking statements are subject to known and unknown risks,

uncertainties and other factors that can lead to the turnover, profitability, target achievement and results of TLG IMMOBILIEN

AG differing greatly from those named or described expressly or implicitly in this publication. Due to this, those who come into

possession of this publication should not trust in such forward looking statements. TLG IMMOBILIEN AG accepts no liability and gives

no guarantee for the correctness of such forward looking statements and will not adjust them to future results and developments.

TLG IMMOBILIEN AG

Hausvogteiplatz 12, 10117 Berlin, Germany

www.tlg.eu

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